Pan American Silver‘s key operating mines include Huaron, Morococha and Quiruvilca in Peru, Dolores, La Colorada and Alamo Dorado in Mexico and Manantial Espejo in Argentina. The company maintains ownership of the Navidad Project located in Chubut Province, Argentina; to which we ascribe no value.
We maintain our BUY rating on Pan American Silver following Q1/13 financial results which were modestly ahead of expectations. We expect investors to be attracted to the company’s strong balance sheet ($738 million in net working capital at Q1/13), strong free cash flow from operating assets (we estimate that the company could generate an average of 9% of its current market cap in annual free cash flow over the next four years), exploration/production growth opportunities at key operating assets, management’s financial discipline, and willingness to enhance shareholder returns through dividends/share repurchases. We believe the above defensive traits should increase the stock’s attractiveness in difficult market conditions, providing for potential near term re-rating with significant optionality upside potential to an improvement in the Argentinean situation.
Pan American reported Q1/13 adjusted diluted EPS of $0.26, which was modestly ahead of our estimate and consensus of $0.25, the variance to our estimate explained by lower depreciation partly offset by lower revenues (lower sales volumes) and higher corporate G&A.
Q1/13 production of 6.28 Moz Ag was largely in line with our 6.23 Moz forecast. Gold production was 32,120 (vs. our 36,112 oz estimate), zinc production was 9,694 tonnes (vs. our 9,955 tonnes estimate), lead production was 3,148 tonnes (vs. our 3,125 tonnes estimate), and copper production was 1,062 tonnes (vs. our 920 tonnes estimate).
Q1/13 total cash costs were $11.33/oz, better than our $12.24/oz estimate, with lower than expected costs at Alamo Dorado (better grades), Manantial Espejo (better grades and lower implied site costs partly due to some stripping that was capitalized) partly offset by higher costs at Dolores (lower recoveries, higher implied unit site costs likely the result of lower tonnage stacked).
2013 guidance is unchanged at 25 – 26 Moz Ag and 140 – 150 koz Au at $11.80 – $12.80/oz cash costs. Cash costs may be reviewed by the company for a decline in by product credits due to lower metal prices, potentially offset by operating expenditure reduction initiatives being undertaken by the company
- Pan American Silver Corp. (USA) (NASDAQ:PAAS): Insiders Are Dumping, Should You? (insidermonkey.com)
- Pan American Silver Holds Dividend Steady (fool.com)
This is Zazzle Canada’s unique coll
BSX : TSX : C$0.89
Belo Sun Mining Corp is a gold exploration and development company currently focused on expanding and advancing its 100% owned Volta Grande Project located in Para State, Brazil.
All amounts in C$ unless otherwise noted.
We reiterate our SPECULATIVE BUY rating on Belo Sun following the release of the Volta Grande Pre-Feasibility Study which highlighted a 15.2% after-tax IRR @ $1,450/oz Au, which we consider attractive for a project this size. Project parameters were slightly better than our expectations aside from reserves of 2.814 Moz grading 1.48 g/t which were lower than our estimate of 3.88 Moz at 1.47 g/t, although this appears to be driven by a lower gold price of $910/oz used for pit design (vs. $1,400/oz for the resource pits). Pending further drilling, we expect that a portion of the 4.2 Moz in pit constrained resource (beyond reserves) will be upgraded into reserves, as a result of which our mineable resource assumption remains unchanged (aside from a possible higher strip ratio).
While challenging market conditions have prompted us to lower our valuation (equity raise at a lower price, lower target multiple and tempered in-situ value for unmodeled resource ounces), we continue to believe that Belo Sun should fare better than most of its developer peers considering the higher grades, large scale and robust economics. We continue to believe that the shares should re-rate over the next 12 months as Volta Grande is further de-risked and advanced through the feasibility and permitting stages.
The study estimates production of 313,000 oz/year at $712/oz total cash costs, based on 7.0 tonnes/year throughput and a $749 million in
capital plus $19.6 million/year in sustaining capital. The after-tax NPV (5%) using $1,450/oz is $474.2 million, with a 15.2% IRR.
We expect reserves to continue to grow following further drilling and resource to reserve conversion, especially since the global open-pit
resource currently stands at 7Moz. We also see the potential to enhance project economics through the inclusion of higher grade South Block
resources early in the mine life pending additional metallurgical testing and engineering studies (Inferred resource of 0.471 Moz at 2.73 g/t).
The Definitive Feasibility Study (expected Q4/13) is expected to be based on an updated resource expected in Q3/13.
Our target price otherwise reflects approximately 0.60x our 5%/diluted peak NAVPS estimate of US$2.50 or US$48/oz on an EV/oz (total resources) basis.
- Belo Sun Mining Completes Pre-Feasibility Study (sys-con.com)
Tasiast PFS de-risks expansion project; economics skinny
We reiterate our BUY recommendation on Kinross Gold following the results of the prefeasibility study (PFS) on its Tasiast expansion project. While initial capital and sustaining capital costs are higher than expected, this is partly offset by a better production/cost profile in the first five years of the expansion.
The PFS outlines the economics of a 30,000 tpd mill operation which along with the dump leach is expected to recover approximately 10 Moz gold over the life of mine.
Initial capital costs are estimated to be $2.7 B (vs our $2.1 B) and sustaining capital (incl. capitalized stripping) is estimated at $2.1 B (vs our $1.5 B estimate). Average annual prod’n is expected to be 475,000 opy @ $700/oz (in line). However, higher grades in the first five years will deliver 830,000 oz @$500/oz vs our est of 530,000 oz @$680/oz.
The higher capital costs are largely offset by higher production and lower cash costs in the first 5 years. The company estimates the 5%/$1,500 gold NPV of $1.1 B (IRR 11%) which is largely in line with our $1.16 B estimate under the same gold price and discount rate. (see figure 1 for our estimated NPV sensitivity to gold price/disc rate). Upon receipt of the PFS, we have de-risked Tasiast to apply a discount rate of 10% from 12.5% (worth $0.37/sh). Pending further review, we will incorporate the PFS parameters into our valuation following the report of Q1/13 results.
The project IRR is relatively low (larger scale projects typically don’t lend themselves to robust IRR’s) but areas of optimization include potential mineable resource additions, lower cost natural gas power (vs HFO base case option) and a larger-scale mill (38,000 tpd vs 30,000 tpd).
Given the recent pullback in gold price and the risks associated with attaining our one year peak gold price target, we have lowered our target multiple to 0.7x from 0.8x. This results in a revised target of US$8.00 from US$9.75 based on our 5%/peak NAVPS estimate of US$11.28 (previously US$12.12).
The typical risks associated with any mining investment include commodity and exchange rate risk, permitting and technical development/operating) risk. The company’s asset diversification lowers the overall risk profile of the company though investors considering an investment in Kinross should consider the development and country risk associated with Fruta del Norte in Ecuador and Tasiast in Mauritania.
- Kinross Gold Studies 830000 Ounce-a-Year Tasiast Output Plan – Bloomberg (bloomberg.com)
- Kinross Gold puts Tasiast expansion at US$2.7 billion (mining.com)
- Kinross probably can’t make big Mauritania mine work even at $1,500 gold (gata.org)
Yamana Gold is a significant gold, silver, and copper producer with mining operations in Brazil, Argentina, Chile, US and a pipeline of exploration and development projects throughout the Americas. Yamana Gold produced 1.2 Moz gold equivalent in 2012, which is expected to grow to more than 1.75 Moz by the end of 2015.
All amounts in US$ unless otherwise noted.
LOWERING TARGET TO US$19.75 FROM US$20.75
We reiterate our BUY rating on Yamana following the release of Q1/13 results. Yamana’s sh
ares continue to offer low risk, low cost superior production, and net free cash flow growth.
Q1/13 adjusted fully diluted EPS of $0.16 was in line with our estimate, but below consensus of $0.18. Commercial production was 287,203 oz AuEq (sales of 284,872 oz AuEq) at by-product/co-product cash costs of $383/$587/oz AuEq vs. our estimate of 290,000 oz AuEq at $390/$604/oz AuEq. Copper production at Chapada was 27.4 Mlb at $1.90/lb vs. our estimate of 28.1 Mlb at $1.90/lb.
Construction completed at C1 Santa Luz, commissioning started in late April. Construction at Pilar was 85% complete at the end of Q1/13. Commissioning at Ernesto/Pau-a-Pique continues, but ramp up to commercial production will likely be slower than expected with production coming from the lower grade Ernesto pit until definitive permits for the entire operation are received under the proposed new Brazilian mining code legislation, which is in progress.
The company has initiated a plan to reduce all-in co-product costs by $150/oz AuEq by the end of 2013; realized through reductions in operating costs, capital expenditures, exploration, and G&A.
2013 guidance was generally maintained at greater than 1.44 Moz compared to the previous guidance range of 1.44-1.60 Moz AuEq (including pre-commercial production) at cash costs of $365/oz AuEq. Production growth in 2013 is expected to be led by the start-up of C1 Santa Luz (Q3/13E commercial), the Ernesto pit at Ernesto/Pau-a-Pique (Q3/13E commercial), and Pilar (Q4/13E commercial).
Our 12-month target price is being revised to US$19.75 (prev. US$20.75) based on 1.0x (prev. 1.05x) our 5%/peak NAVPS estimate of US$19.62 (prev. $19.69
Distrust of the Federal Reserve and concern that U.S. dollars may become worthless are fueling a push in more than a dozen states to recognize gold and silver coins as legal tender.
The measures backed by the limited-government Tea Party movement are mostly symbolic — you still can’t pay for groceries with gold in Utah. They reflect lingering dollar concerns, amplified by the Fed’s unconventional moves in recent years to stabilize the economy, said Loren Gatch, who teaches politics at the University of Central Oklahoma.
“The legislation is about signaling discontent with monetary policy and about what Ben Bernanke is doing,” said Gatch, who studies alternative currencies at the Edmond, Oklahoma-based school. “There is a fear that the government, or Bernanke in particular and the Federal Reserve, is pursuing a policy that will lead to the collapse of the dollar. That’s what is behind it.”
Bernanke has pushed interest rates to near zero since the 18-month recession that began in December 2007. The Fed said in March it would continue buying $85 billion in securities each month in a program known as quantitative easing that has ballooned its assets beyond $3 trillion and is aimed at keeping long-term borrowing costs low to support economic growth.
Consumer prices rose just 1.3 percent in February from a year earlier, according to an inflation measure favored by the Fed. That was below the central bank’s 2 percent target and compares with occasional bouts of more-than 10 percent increases in the 1970s and early 1980s.
Bets that inflation would pick up because of economic- stimulus measures helped fuel a 78 percent jump in gold since December 2008. The dollar’s rise to less than 1 percent below a one-year high set in July and monthly increases of about 2 percent or less in the U.S. consumer price index have curbed demand for bullion. Since reaching a record $1,923.70 an ounce in 2011, gold prices have fallen and are near a bear market.
Gold futures for June delivery fell almost 0.2 percent today, to $1,573.20 an ounce on the Comex in New York and have lost 6.1 percent this year. The price touched $1,539.40 on April 4, a 10-month low for a most-active contract.
In Texas, lawmakers are considering a measure supported by Republican Governor Rick Perry to establish the Texas Bullion Depository to store gold bars valued at about $1 billion and held in a New York bank warehouse. The gold is owned by the University of Texas Investment Management Co., or Utimco, which took delivery of 6,643 bars of the precious metal in 2011 amid concern that demand for it would overwhelm supply.
The proposed facility would also accept deposits from the public, and would provide a basis for a payments system in the state in the event of a “systemic dislocation in a national and international financial system,” according to the measure.
Should Texas take such a step, it would offer sovereign backing for deposits and make buying and storing gold easier, said Jim Rickards, senior managing director at Tangent Capital Partners LLC in New York and author of “Currency Wars: The Making of the Next Global Crisis.” He said the coin measures, while impractical, have symbolic value.
“We are seeing a distinct movement back to a world where gold is considered money,” Rickards said.
The measures give “people the option of using money that won’t lose any purchasing power to inflation,” said Rich Danker, economics director at the American Principles Project. The Washington-based public-policy group supports the steps as well as a return to the gold standard, which pegged the dollar’s value to bullion. President Richard Nixon formally ended the convertibility of U.S. currency to the precious metal in 1971.
“People in these states find the idea of having the option to use hard currencies appealing over these policies they have no control over,” Danker said.
The U.S. Constitution bars states from coining money and also forbids them from making anything except gold and silver coin tender for paying debts. Advocates say that opens the door for the states to allow bullion as legal tender. The measure being considered in South Carolina would recognize foreign or domestic minted coins as legal tender.
Utah’s law applies only to U.S.-minted coins, while other states are less clear on whether privately produced coins qualify. Arizona leaves the door open for private coins if they are declared legal by a non-appealable court order.
In Utah and some other states, the measures also eliminate state capital gains or other taxes on the coins.
Critics say the state measures are unwieldy. In Arizona, Senator Steve Farley, a Democrat, unsuccessfully offered an amendment that would have recognized as legal tender other state commodities, such as citrus fruit, as well as sunbeams. The amendment was intended to reflect the absurdity of the bill, said the 50-year-old lawmaker from Tucson.
“It is simply grandstanding to get people afraid that somehow President Obama’s agenda is going to drive us into hyperinflation and economic collapse,” Farley said. “We have enough real problems to deal with. I don’t see undercutting our entire financial structure as a priority.”
In Utah, officials haven’t yet figured out how to accept gold and silver for tax payments — though some residents have asked to pay that way — or integrate the precious metals into commerce, state Treasurer Richard Ellis said. Lawmakers have established a task-force to study implementing the law and to examine how the state can accept gold and silver, with their fluctuating values, for payment, Ellis said. He’s not optimistic that it will work, he said.
“People point to Utah and say we are leading the way, but nothing much has happened because regulatory hurdles have gotten in the way,” said Ellis, a Republican. If gold and silver is being used in the state as legal tender, it is probably only in transactions between individuals, he said.
The Utah Precious Metals Association, established after passage of the 2011 law to advocate for the use of gold and silver coins, has about two dozen members enrolled in a two month-old bill-pay service in which their accounts are held in gold, said Lawrence Hilton, the group’s chairman. Hilton envisions a future with an alternative monetary system based on precious metals in which merchants accept silver coin while gold mostly backs electronic transfers.
The Republican-sponsored Arizona measure passed the House of Representatives 36-22 today, after being amended last week. Before landing on the desk of Governor Jan Brewer, a Republican, the bill must go back for another vote in the Senate, where it was approved 17-11 on Feb. 28. Gold is mined in both Arizona and Utah, while Nevada is the largest U.S. producer, according to figures from the National Mining Association in Washington.
The bill’s sponsor, Senator Chester Crandell, 66 of Heber, said he is convinced the move is the “logical thing for the state of Arizona to do.”
“I think you look at some of the things that are happening and the amount of money printed by the Federal Reserve and who has control of that money, and I think anybody would be concerned,” Crandell said. “Gold and silver have been around a long time and people are secure with it and we should give them an opportunity to use it.”
WisdomTree Japan (DXJ : NYSE : US$44.54)
iShares MSCI Japan ETF (EWJ : NYSE : US$10.96)
Last week – Thursday- the new Bank of Japan (BoJ) President Haruhiko Kuroda over-delivered on his promises to double the size of the bank’s balance sheet over the next two years. Indeed, with the objective to achieve a 2% inflation target, the pace of expansion in the balance sheet will increase this year to 5.2 trillion yen/month from 3.6 trillion yen previously.
For 2014, the balance sheet is projected to expand by 5.8 trillion/month yen versus a rate of 1 trillion yen before. Despite this massive stimulus, Japanese 10-year government bond yields surged from 0.32% to 0.65% and triggered circuit breakers as the level at which investors are willing to buy bonds seems at much higher bond yields.
Japanese stocks have been the net beneficiaries of the switch out of bonds rising another 3.5% last week. Speaking with CNBC (via Business Insider), legendary investor George Soros said, “What Japan is doing right now is actually quite dangerous because they are doing it after 25 years of just simply accumulating deficits and not getting the economy growing…So if what they’re doing gets something started, they might not be able to stop it. If the yen starts to fall, which it has done, then people in Japan think it’s liable to continue, and will
want to put their money abroad. The fall may become like an avalanche. You can start it. [But you may not be able to stop it.]“
Soros added, “Nobody believed Kuroda would have the courage to do what he did…The amount of quantitative easing that he’s introducing is the same as in the United States, but Japan is only one-third the size. So it’s three time more powerful than what’s happening in the U.S.”
Reports say Soros has made more than a $1 billion shorting the Japanese yen.
Over the past month, WisdomTree’s Japan Hedged Equity Fund added another $1 billion in new assets. iShares MSCI Japan, which is notcurrency hedged, was also popular with $830 million of inflows.
- 3 ways to play Bank of Japan move (blogs.marketwatch.com)
- The Bank of Japan Listens to Ben Bernanke After Fifteen Years, and Goes for Reflation (delong.typepad.com)
- George Soros: Japanese Policy Dangerous, Yen Could Collapse (valuewalk.com)
Led by former Minefinders executives, Esperanza Resources is a development stage gold company with a portfolio of projects in the Americas. Management is focused on advancing their 100% owned fully permitted and shovel ready La Bolsa heap leach project located in Sonora, Mexico (pending PAAS trans close, est. Q2/13) and their flagship Esperanza heap leach project located in Morelos, Mexico.
We are initiating coverage on Esperanza Resources Corp. (EPZ : TSX-V) with a SPECULATIVE BUY recommendation based on a 12-month risk-adjusted target of C$1.70, a ~70% premium to current price levels. The company trades at a P/NAV (US$1,600/5%) multiple of 0.45x (0.19-0.70x, average 0.48x). We estimate its EV/oz (Au only M&I resource, post transaction) at $30/oz versus an average of US$43/oz ($8-87/oz) for its peer group of developers. For more details, please see our full report, “Top of the Heap: Introducing a Trinity of Near-Term Open Pit/Heap Leach Gold Projects in the Americas.”
Pan American Silver Corp. transaction – The company entered into a transaction with Pan American Silver to create a gold project pipeline (2.8 Moz in M&I) with significant by-product silver credits (28 Moz in M&I) predominantly in Mexico. The transaction included a private placement at a premium that would bring its W/C position to $65-70 million (CG est.) leaving it fully funded to develop La Bolsa ($50 million, CG est.).
Post transaction, Pan American Silver would own ~48% of the company’s I/O shares and ~45% on a F/D basis. We note that Pan American Silver Corp. has stated that its long term goal is to vend its stake in Esperanza (~48%) once a reasonable valuation is achieved