Gold Up 25% Yet Equities Flat to Down - AM Gold Inc. Identified for Portfolio Consideration as One of the Best Intrinsic Value Bargains in the Mining Sector

Share Article

Mining industry researcher Dennis Boyko has published a report evidencing how the market valuations of gold stocks have not been keeping pace with the spot market price of gold. Even on a 52 week basis many gold stocks (seniors, mid-tier, and juniors) are flat to down while the price of gold is up nearly 25%. Boyko explains this positive divergence between gold spot market prices and gold stock valuations rests with the “group think” of mining analysts with respect to the future price of gold and silver as many analysts are using estimates for future pricing of gold substantially lower than current (e.g. US$1,000/oz for the 2016E) with little variance between analysts. Although conservatively prudent on the part of analysts, the realities of fundamentals in the global macro environment suggest equities with verified intrinsic gold value in the ground appear undervalued.

Mining industry researcher Dennis Boyko argues that investors today should be building a long term position in gold stocks as the current positive divergence between the spot price of gold over the market valuations of gold stocks will correct over the long term. It does however pay for investors to research where their money can have the best results on a risk–reward basis. In a separate report Boyko has initiated coverage on AM Gold Inc. and joins rank in opinion with James West (regular guest on BNN, contributing commentator to a host of mining publications, editor of the Midas Letter, recent CNBC Fast Money discussion panel member, and BBC financial correspondent) in identifying shares of AM Gold Inc. as one of the best intrinsic value bargains in the mining sector on a comparative market cap per ounce of gold equivalent and average ore value per tonne basis.

Boyko maintains a comprehensive list of gold mining stocks with associated percentage types of resource categories for handy reference. The metal value report for AM Gold may be viewed at http://www.goldminerpulse.com/c/amg.php online.

Comparative analysis is always difficult due the myriad of differences between companies, projects, ore types, resource categories, plus the approach has limitations which do not account for mining dilution, metallurgy, recovery rates and the like, however it is a useful metric. Boyko’s full list of mining company rankings and in-situ valuations is located at http://www.goldminerpulse.com/gold-mining-valuations.php online. As is evident from this list of mining companies (market cap and market cap per ounce of gold equivalent), AM Gold Inc. is just about the cheapest gold junior out there today.

In commentary and discussion Boyko qualified his findings saying “The market cap per ounce of gold equivalent doesn't quite tell the whole story since the cost of mining is dependent on the costs of extracting, moving, crushing and processing tonnes of ore. The work/costs in handling a tonne of ore are to a first order approximation independent of the metal content. … Therefore, average ore value per tonne is another useful metrics for comparing gold mining companies.” Boyko’s comparative tables and individual company formulas incorporate the daily closing prices for stocks and metals so things change daily; (June 6, 2011) “AM Gold has an ore value of roughly US$38 per tonne and market cap per ounce of gold equivalent of ~US$8.50.” Boyko noted only one other stock which he tracks had a lower market cap per ounce of gold equivalent than AM Gold but dismissed the other stock due to the significantly lower ore value.

At its 100% owned Pinaya property located in Peru AM Gold possesses 969,000 ounces gold and 610 million pounds copper in all categories, broken down as follows: 152,000 ounces Gold Measured + 464,000 ounces Gold Indicated + 353,000 ounces Gold Inferred and 57.991 million pounds of Copper Measured + 234.778 million pounds of Copper Indicated + 318.171 million pounds of Copper Inferred resource. Am Gold also possesses a resource estimate of 1,230,000 ounces gold (at a 0.3 g/t gold cut-off, 1.318677 million ounces gold at a 0.2 cut-off) on their 100% owned Red Mountain gold project located within the Tintina Gold Belt, Yukon.

Boyko is particularly keen on AM Gold’s Pinaya project in Peru and watches Rio Alto to gauge in-country political risks, Rio Alto also offers a good comparable to show the potential for shareholders of AM Gold; “A good comparable for AM Gold is Rio Alto which just started production in Peru with average ore value per tonne of US$39 and is valued at a market cap per ounce of gold equivalent of roughly US$29.50. For the comparison with Rio Alto to be fair, you would need to account for the capex for mine development. IMO, roughly US$20 per oz of gold equivalent is more than enough to account for mine development.” … “When I started following Rio Alto, the company was trading at roughly C.20 (Mrkt cap 10M). After Rio Alto got listed on the Lima exchange, and several PP and financing deal Rio got the stock price up to C$2.00+ and Mrkt Cap C$367 about 2 years later -- and in that time frame Rio Alto didn't add one meter of new drill results. They just raised the money with dilution to get to production.”

Boyko summarized near term potential and catalyst for AM Gold Inc.; “AM Gold with a market cap of ~C$25M is well positioned to hit out of the park with some good drill results this summer. Looking at the last financial statement plus all of the in the money warrants expiring this June/summer, I would expect that AM Gold is going to be well funded for this year's drill program at the very least.” … “In short, I like AM Gold at these prices.”

Other sources for DD on AM Gold Inc. identified by Sector Newswire:
1) Company website http://www.amgold.ca
2) SEDAR http://sedar.com/DisplayProfile.do?lang=EN&issuerType=03&issuerNo=00005397
3) Recent insight http://miningmarketwatch.net/amg.htm

Article by Boyko; Why Gold Mining Stocks Are Bargain Priced in the Current Market http://seekingalpha.com/article/273992-why-gold-mining-stocks-are-bargain-priced-in-the-current-market

This release may contain forward-looking statements regarding future events that involve risk and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual events or results. Articles, excerpts, commentary and reviews herein are for information purposes and are not solicitations to buy or sell any of the securities mentioned. Readers are referred to the terms of use, disclaimer and disclosure located at the above referenced URLs.

###

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Alfred Seung
Sector Newswire
(866)620-9945
Email >
Visit website