Miners rush to finance their ventures
Bullion veterans point to several 'cheap' stocks
By Thom Calandra, CBS.MarketWatch.com
Last Update: 12:29 PM ET Aug. 11, 2003
SAN FRANCISCO (CBS.MW) -- A $10 fillip in the price of gold has sparked a spate of miner financings in the stock market.
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The transactions are all over the map.
Companies digging for gold, copper, silver and platinum from Africa to Canada to Turkey are benefiting from an increased appetite for bullion risk.
Eldorado Gold (CA:ELD: news, chart, profile), with stock traded in Canada, says it raised more than $60 million via common shares and warrants to develop its Kisladag mine in Turkey. That transaction was one of the larger of many windfalls the past 10 days for cash-starved bullion exploration companies and miners.
The extent of the financings is remarkable, given that the price of gold, and most other metals, has stalled this summer. On Monday, gold's spot price was up $4 to $360 an ounce. It would appear the mining sector is attracting interest on an increasingly nervous Wall Street, where technical and fundamental analysts are forecasting sharp gains for gold, silver, platinum and copper. See: Technical crowd seeks bullion.
"The Commodities Research Bureau Index just broke out higher, and base metals are climbing slowly," says Robert Bishop of Gold Mining Stock Report. "It's a friendlier environment for metals, and hey, where do you put your money these days?"
Companies seen as "damaged goods" are regaining investors' favor. Canyon Resources (CAU: news, chart, profile), a long-struggling Colorado-based miner, just raised almost $2 million through a sale of warrants. Canyon's Dick DeVoto, a former mining professor, has been waging a years-long campaign to develop the vast McDonald gold mine in Montana, where environmentalist voters are hostile to mining interests.
As readers of The Calandra Report know, I believe DeVoto likely will succeed either on the ground or in the courts. If so, Canyon Resources will find itself in possession of a 10 million-ounce resource, or a hefty civil damage award that could approach a half-billion dollars.
Canyon Resources, traded on the Amex, has a market cap of $33 million. "It's most definitely one of the cheapest gold assets out there" says John C. Doody, editor of Gold Stock Analyst.
On Monday morning, Kinross Gold (KGC: news, chart, profile), a mid-sized gold producer, said it was selling $185 million Canadian worth of new shares, mostly to pay off convertible debentures. Privately held companies are also enjoying the fruits of financings.
Robert Friedland's African Platinum Minerals just raised $7 million at $6 a share, an extraordinary level for a private company. The company is active in and around South Africa's North Limb of the Bushveld platinum complex.
"With talk of Friedland's African Minerals reportedly going public in the fall, and Anglogold (AU: news, chart, profile) deals with junior miners brewing, the North Limb is the hottest platinum play in the world," said John Foulkes, corporate development manager at tiny Platinum Group Metals Ltd. (CA:PTM: news, chart, profile) in Vancouver. Platinum Group Metals has two exploration projects in the North Limb, and its Canada-traded shares have about doubled in 10 weeks.
South Africa's Anglogold, one of the world's largest gold miners, is bidding more than $1 billion for Ghana's Ashanti Goldfields (ASL: news, chart, profile) in a move that might open the floodgates to other corporate mergers and takeover offers, some of them hostile as large miners seek to restore depleted reserves of proven and probable resources on their balance sheets. (See: The Calandra Report for more on several brewing deals.)
Friedland, controlling shareholder of Mongolia copper and gold developer Ivanhoe Mines (CA:IVN: news, chart, profile), says he's extremely bullish about prospects for platinum, a metal that increasingly is finding industrial uses, and is becoming the ultra-chic jewelry of choice among Asia high-rollers.
"Platinum is pushing $700 an ounce and has a bright industrial future," Friedland told The Calandra Report in an interview last week. "There are probably 60 ounces of gold in the Earth's crust for every ounce of platinum, and no central banks own platinum, so they can't sell it, can they?" he says with a wink.
"If you forced me to own only metals and nothing else, I'd put 50 percent into nickel, 40 percent into platinum and 10 percent into gold," says Friedland, a 53-year-old billionaire with homes in Singapore, Northern California and Canada. "Give a girl in China a ring these days, a gold one and not a platinum one, and she'll say, 'What am I, cheap goods?'"
Platinum's price Monday was pressing $700 an ounce. Others who are known as the "rock stars" of the mining world expect gold and related metals prices to soar in coming months.
Pierre Lassonde of Newmont Mining (NEM: news, chart, profile), the world's biggest gold producer, just forecast the metal would notch at least $450 in the coming year as the U.S. dollar continues to deflate and the Chinese, recently permitted to own and trade gold, increase their purchases.
Frank Veneroso, a mysterious but revered asset manager and gold economist, recently published what some say are his first printed comments on the gold market in several years. Veneroso, based in San Francisco but never eager to return several of my own personal phone calls, said in an article in Brien Lundin's Gold Newsletter that "we have reports that, in the wake of Sept. 11 and the Bush administration's war on terrorism, Islamic institutions and wealthy Islamic individuals, fearful of a U.S. seizure of their assets, converted dollar assets into gold."
Veneroso, said to be forming a new gold fund for large investors, also says buying in China and hedge-book buybacks by large gold producers are some reasons for gold's rise. "All of this buying, taken in the aggregate, must have represented demand for thousands of tons of gold," says Veneroso, who's one of a handful of bullion believers who see gold's price rising sharply in coming years.
Frank Holmes, chief executive of asset manager U.S. Global Investors, contends investors are most interested in shares of mining companies that have so-called polymetallic deposits. These are deposits that offer the possibility of double-strikes: copper and gold, for instance.
Holmes first told me about this theme a year ago, over dinner at a Denver Gold Forum event. The longtime asset manager says copper-gold porphyries "represent significant sources of gold on a world scale."
CIBC World Markets in Toronto estimates about 8 percent of the world's gold production comes from such copper-gold deposits. The world's largest single source of gold is a copper-gold porphyry deposit, the Grasberg Mine owned by Freeport McMoran Copper and Gold (FCX: news, chart, profile) in Indonesia, with gold reserves greater than 60 million ounces.
Holmes, born in Canada and based in San Antonio, Texas, the headquarters of $1 billion-plus U.S. Global Investors, has been on the mark in his search for cheap copper-gold stocks. He was among the first asset managers in North America to identify shares of Wheaton River Minerals (WHT: news, chart, profile), a Mexico producer, as an underpriced miner of gold and copper.
Wheaton's shares have more than doubled since listing on the American Stock Exchange nine months ago. "Many of the great success stories this year have been copper-gold deposits, like Ivanhoe Mines and Northern Orion Resources (CA:NNO: news, chart, profile), Holmes tells me as he hustles to make a connecting flight to yet another gathering of mining mavens.
Holmes has identified another dirt-cheap copper-gold producer that is selling for about 50 percent of the cash-flow multiple of its larger peers -- a value identifier that has served him well in the past. I'll have more about Holmes' current choice in this week's publication of The Calandra Report.
Holmes, Veneroso and other noted bullion analysts will be speaking this year at the New Orleans Investment Conference. Mention my name, The Calandra Report or that of CBS MarketWatch and you'll receive a discount for admission to the late October event. See: New Orleans Investment Conference.
Thom Calandra's StockWatch is CBS MarketWatch's flagship column. The regular report is in its eighth year at CBS.MarketWatch.com. Thom Calandra is also author of subscription service The Calandra Report.
