ST. LOUIS (MineFund.com) -- Mining stock investors love production growth; especially high margin production growth. Reserves may be nice to have, but cash flow trumps optionality in nearly every instance. So let's look at the most promising production growth stories that are backed by some form of feasibility study.
Be warned though; the market has priced this growth into stock prices for some time. Don't assume this is low-hanging fruit. We will deal with the low, or lower hanging fruit in an upcoming piece. For these rankings, the opportunity lies in weighing whether or not the pricing is appropriate. Likewise, the production increases are a snapshot - some companies will see production decline at one project whilst another comes on stream. The objective is an illustrative look at what might be if all the production potential was in play.
To develop our rankings, we used the unbeatable GoldNerds research service. The GoldNerds data packages are available in North American and Australian versions, and cover most of the world's precious metal companies in great depth and breadth. Full disclosure - we have a relationship with GoldNerds.
These rankings give preference to companies with existing production. So companies developing significant projects - such as Seabridge Gold -- but without an operating history are penalized. See our various rankings to get more detail:
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Top 25 Fastest Growing Miners |
Top 25 Fastest Growing Miners |
Top 25 Fastest Growing Miners |
Top 25 Fastest Growing Miners |
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Gold or gold equiv. ounces |
Gold or gold equiv. ounces |
Gold or gold equiv. ounces |
Gold or gold equiv. ounces |
Rankings
1. Silver Standard Resources [ CA:SSO | US:SSRI ]
There is one company that stands head and shoulders above all others if you're looking for outright growth in virtually every metric - Silver Standard Resources.
Once its new and very rich Pirquitas mine in Argentina ramps up to full production rates, it is expected to throw off nearly 1 million gold equivalent ounces per year from just 8,000oz/yr presently. Just this year it will produce some 7 million ounces of silver. Commissioning has looked relatively smooth save for an unexpected zinc encounter, and more sulfide ores going to the mill should be a boost to recovery rates.
If all goes well, and with the inclusion of prospective production from its other assets, Silver Standard may be able to boast nearly half a billion dollars a year in basic operating cash flow at a gold price of $1,000/oz. Not all of that will flow through on a per share basis, but earnings per share (EPS) are expected to rise over 500%.
Silver Standard Valuation Strengths
- Low total cost of ownership (TCO) per ounces. We can't reveal the TCO (If you bought a company and mined all its mineable gold, you would expect to pay the TCO for each ounce of bullion thus produced.)
- Keep an eye on the Snowfield project.
- Takeover potential.
Silver Standard Valuation Weaknesses
- Lacks a gold premium. Gold equivalent ounces don't cut the mustard.
- Susceptible to less attractive base metal prices.
- Seems to be traded by remote control in lockstep with Hecla and Couer d'Alene. Is falling further behind Silver Wheaton valuations.
- Argentina...
2. Aurcana [ CA:AUN ]
Silver producer Aurcana is coming off a very small production base of just 5,000 gold equivalent ounces over the past four quarters. That is tiny, but, we're not applying size and pinstripe tests - all we're looking for is outsize growth.
The company's La Negra (Mexico) and Shafter (Texas) projects are slated to produce up to 56,000 gold equivalent ounces a year. To be sure that's small by any standards, but the production increase is more than 1,000% and basic operating cash flow could increase by nearly the same multiple.
Investors may have trouble getting to grips with a small silver producer with base metal by-products, but a tenfold surge in cash flow can be a handy company builder if it's managed correctly, and mine life is extended to turn it from a cash fountain into a cash river.
Aurcana Valuation Strengths
- Ongoing exploration at La Negra could yield positive news.
- Keep watching the Shafter project progress.
- Stock has been under pressure for a long time but has shown some recent breakout activity compared with other North American silver producers.
Aurcana Valuation Weaknesses
- Watch out for dilution.
- Lacks a gold premium.
- Susceptible to less attractive base metal prices.
- Quite richly valued compared with its peers.
- Lack of non-company issued news flow from broker-dealers, newsletter writers, and media.
- Mexico...
3. Atna Resources [ CA:ATN ]
Atna Resources is the top gold producer in the growth rankings, but you wouldn't say so from the stock chart. The company has been mauled to pieces, and is dragging along like a wounded animal.
It has four projects in four stages:
- Under construction - Briggs Mine, California.
- Feasibility - Reward project, Nevada.
- Scoping - Columbia project, Montana.
- Evaluation - Pinson Mine, Nevada (minority partner in joint venture).
The first three projects could eventually produce 131,000 ounces of gold a year, up from just 15,000 ounces a year. That's a massive increase, and the potential cash flow change is mouthwatering.
However, the stock price points to an apparent financing problem. That has finally manifested, in our view, in the recent Gold Participating Bond Offering. Yes, it may be non-dilutive to shareholders, but it is an expensive form of debt that investors will short-hand to "hedged gold producer". The production increase is large, but some of it is also a long way off.
4. Centamin Egypt [ CA:CEE | UK:CEY ]
Low key Australian-Egyptian producer Centamin could grow from gold production of 37,000 ounces a year to 300,000 ounces a year. That might translate into basic operating cash flow rising over 700% to almost $200 million per year at $900 gold and assuming projected cash costs of $365/oz hold.
With a focus on the London buy and sell side, the market has finally got its arms around the story, and the stock price has rocketed to heady levels. For example, compare it with Randgold Resources, another strong performer this year - Centamin has outpaced it, and is holding onto very strong gains despite the gold price falling away.
One of the reasons for the strong investor support is the flow of good news on its flagship Sukari project, which is not always common in the mining sector.
- Production forecasts have not been revised.
- Construction and commissioning has gone very smoothly.
- The process plant is performing above design capacity.
- Measured and indicated resources have increased net of mining depletion.
Centamin Valuation Strengths
- Powerful management team.
- Low key style - under-promise and over-deliver.
- First mover advantage in the region - improving capacity and credibility to do deals in the region.
- FTSE250 inclusion provides some more institutional interest.
- American retail investor market has hardly been tapped.
- Takeover potential.
Centamin Valuation Weaknesses
- Single asset dependency.
- Egypt - especially with developments surrounding the succession plans for Mubarak. However, it should be noted that the project is 700km south of Cairo and, therefore, well insulated.
5. Great Basin Gold [ CA:GBG | US:GBG ]
Hyperactive Great Basin ranks fifth thanks to an expected leap from 64,000 ounces of gold produced over the last twelve months to 400,000 ounces a year. There have been some stumbles and delays, but give credit to a junior company developing two projects in parallel, one of which is a challenging under-ground mine.
There's very little to show for it in the stock price though. We attribute that to a mixture of political risk and the financing treadmill Great Basin has been on.
Great Basin Gold Valuation Strengths
- Strong promotional skills.
- Support of Hunter Dickinson - intravenous connection to key mining capital bloodlines.
- Takeover potential.
- Geology at Hollister - improved interpretation of vein structure may yield a step-change in mineral resources.
Great Basin Gold Valuation Weaknesses
- Capital structure - investors have to swallow an ocean of warrants that will cost the company around $140 million. There are another $130 million worth of out-of-the money warrants. Huge given the market cap.
- Operating risks - commissioning of Burnstone must be nearly flawless.
- South Africa.
6. Allied Gold [ CA:ALG | AU:ALD | UK:AGLD ]
Another Aussie outfit with strategic inter-listings around the globe, Allied is projected to grow from 63,000 ounces a year to 324,000 ounces a year.
Allied currently produces gold from its Simberi Mine in Papua New Guinea (Tabar Islands Group), and is going through the feasibility process with its Gold Ridge project on Guadalcanal in the Solomon Islands. It would be remiss of us not to note the delightful deposit names at Simberi such as Pigiput and Pigibio.
Allied Valuation Strengths
- Management.
- Takeover potential.
- Buyback of Barrick JV.
- Gold Ridge has passed several thresholds, including getting support from the World Bank.
- Strong news flow.
- Powerful institutional support.
- Sound capital structure.
Allied Valuation Weaknesses
- Solomon Islands political risk.
- Persistent stock price weakness.
7. Argonaut Gold [ CA:AR ]
Newly minted Argonaut is packed with veterans and from Meridian Gold, since acquired and one of the "Three Amigos" of the early part of last decade (along with Goldcorp and Agnico-Eagle). It has had a disappointing run so far with the stock price declining nearly one-third.
The company has the potential to grow production over 400% from around 10,000 ounces a year to 52,000 ounces a year. Again, this is very small in absolute production terms, but don't forget that Meridian grew from the assembly of some initially under-rated assets.
Production growth comes from the Castillo project in Mexico which should boast cash costs of $400/oz or less.
Why is Argonaut's stock price flailing? No idea; beyond the possibility that it was over-priced to start with. The company's total cost of ownership per ounce is in the lowest quartile worldwide, with a rating near Vista Gold, NovaGold, Allied Gold and Jinshan Gold.
8. Alexis Minerals [ CA:AMC ]
It's been a very dispiriting 18 month for Alexis as its stock price has ticked steadily lower, and lately fell into a major swoon that has crashed its paper to just C$0.16 a share. A year ago it appeared to have set a base at around C$0.40/share.
The company achieves its ranking thanks to a projected 344% increase in annualized production from around 30,000 ounces to 135,000 ounces. That assumes some 33,500 ounces a year from the Lac Pelletier project, which has just completed a feasibility study, and an estimated 70,000 ounces a year from the Snow Lake project which is at the scoping stage.
The Lac Pellitier feasibility results were robust with a 61% internal rate of return. Unfortunately, the market is skeptical of management's ability to extend the mine life beyond the present 14 months.
Another factor is the very high total cost of ownership. The GoldNerds data shows Alexis in the highest quartile for the industry, and its aggregate future cash costs are near the highest point of the global cost curve.
9. Aura Minerals [ CA:ORA ]
Canadian junior Aura boasts a stock chart that Alexis does not - strongly recovered since the peak of the credit crisis and trading with good liquidity. It's been a disappointing year, but the stock is well tuned to respond to gold price movements despite only being one-fifth geared to gold. It has also benefited from inclusion in the S&P/TSX Global Mining and the S&P/TSX Global Base Metals indices
Aura's production profile shows a possible change from around 43,500 ounces a year to 185,000 ounces. Unfortunately, cash costs are set to rise at the full rate of production, but they are not out of the ordinary, and the company could throw off operating cash flow of $200 million at current metal prices.
The company produces gold from its San Andr'es mine in Honduras, and the recently acquired Sao Francisco and Sao Vicente projects, located in Mato Grosso, Brazil.
10. B2Gold [ CA:BTO ]
The former Bema Gold team running B2Gold has recovered most of the value it surrendered during the credit crisis. The company's production stats show a rise from about 35,000 ounces a year to 118,000 ounces a year, which could multiply operating cash flow ten times.
Current production comes from the Limon mine in Nicaragua, whilst its nearby and newly commissioned La Libertad (formerly Orisi) project is expected to prove 80,000 ounces a year at a cash cost of 500/oz.
B2Gold Valuation Strengths
- Management.
- Takeover potential.
- Exploration success.
- JV with Radius Gold on its now aging Nicaraguan discoveries.
- Bellavista mine - long-shot, but you never know.
B2Gold Valuation Weaknesses
- Nicaragua political risk.
- Richly valued - TCO is very high.
(c) 2010, MineFund.com
