With the price of gold still looking for a foothold, this group of stops is well-positioned to endure the carnage that others are facing…
It’s time to separate the men from the boys… so the saying goes.
The past year has been a true test of survival for many mining companies, both large and small.
Regardless of whether they’re explorers, producers, or both, the fall of gold prices has wreaked havoc on mining companies across the board – which has led to billions in losses for precious metals investors.
However folks, I believe there’s never been a better time to dive back in!
You see depressed prices and dirt-cheap stocks are what we live for at Top Stock Millionaire and this new environment is almost perfect for finding bargains at fire sale prices.
But which type of gold company would best be capable of weathering this storm?
Sure we’ve seen a bit of a rally in precious metal stocks since June 26, but can any of these companies actually sustain the upward momentum and get themselves firmly in the black again?
The answers to these questions are not so cut and dry.
Should gold prices stagnate or worse, go back into decline – especially with the Feds promising to “taper” down their bond purchases… we could potentially see a whole heap of companies reach for life support in the near future.
What’s worse, mining costs have skyrocketed in recent years, and are continuing to rise even as gold prices remain depressed.
In the last quarter, mining giant Goldcorp reported a $1.93 billion write-down of its assets as they saw their total cash costs surge 75% to $656 per gold ounce.
Barrick saw an even larger write-down – to the tune of $8.7 billion. They immediately slashed their dividend to conserve cash and improve liquidity.
These are huge dollar figures.
And when multi-billion dollar conglomerates resort to such drastic measures in order to survive these depressing conditions one has to wonder, what about the juniors?
They’ve been in much the same boat. Small producers are generating some cash flow but largely at losses due to depressed prices.
Explorers meanwhile are bleeding cash, causing them to either sell more shares or borrow money just to stay afloat — neither of which is easy when gold is in the dumps.
The only exceptions are junior explorers with strong balance sheets. I’m talking ample cash in the bank, little to no debt, and the flexibility to immediately cut costs across the board.
Without the obligations of a producer, explorers with money in the bank have the flexibility to reduce spending on their exploration projects when the going gets tough and ride out the storm.
If they own some promising properties with excellent resources, they can afford to advance their projects at their own pace and pursue production when the gold market improves.
This point is hammered home by analysts at Canadian-based Clarus Securities, “Quality developers with cash are in a better position than some producers to survive in a lower gold price environment as they have no immediate pressure to preserve margins and will ultimately benefit from both opex and capex savings as the industry adjusts to a new, lower cost structure down the road.”
Here are a few stocks that are better positioned to cope with gold’s latest drop:
- Asanko Gold Inc. (NYSEMKT:AKG);
- Aureus Mining Inc. (TSX:AUE);
- Continental Gold Ltd. (TSX:CNL),;
- Dalradian Resources Inc. (TSX:DNA);
- Gryphon Gold Corp. (TSX:GGN);
- PMI Gold Corp. (TSX:PMV);
- Torex Gold Resources Inc. (TSX:TXG)
These are all explorers with strong cash positions.
In my opinion, Torex, Asanko, Continental, and PMI are especially interesting.
Not only are they the best funded of the bunch, but they also have attractive assets that could make them ideal takeovers down the road from larger companies looking to shore up their resources.
Torex: $333.0 million in cash and cash equivalents. Its Morelos Gold Project is located in the highly prospective Morelos Gold Belt near Mexico City. Presently, 75% of their 29,000 hectares of land remain unexplored. Permits are in place to allow for a drilling program to be conducted.
Asanko: $190.4 million in cash and cash equivalents. The company is targeting production at their flagship Esaase Gold project by 2015. Esaase is located in the Asankrangwa Gold Belt in southwest Ghana, and Asanko recently completed an NI 43-101 technical report for Esaase’s pre-feasibility study. Total measured and indicated resources at the project were estimated at 4.41 million ounces of gold at a grade of 1.45 g/t.
Continental: $141.5 million in cash and cash equivalents. Its flagship Buriticá project near Medellín, Colombia had a resource estimate of 1.64 million ounces of gold measured and indicated, 4.6 million ounces of silver measured and indicated, as well as 55.8 million pounds of zinc measured and indicated.
PMI: $116.5 million in cash and cash equivalents. Their primary asset is the Obotan Gold Project is also located in Ghana’s Asankrangwa Gold Belt. A feasibility study conducted last year showed 3.11 million ounces of gold measured and indicated at a grade of 2.16 g/t, with an estimated 2.26 million ounces of recoverable gold over an 11.5 year mine life.
Obviously, there’s no telling where any of the companies mentioned will end up if the gold market remains depressed over an extended period of time.
However, having a nice cash cushion to ride out the storm could be just the thing to bet on if prices turn around.
For investors who believe that gold will soon make a comeback, you may consider taking a cautious position in the gold market once again.
At these depressed levels, stocks carry a lot less risk than they had just a few months ago.