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Mix-Ansicht- Metre Ravi zu einz. Minen. / Raubkopie aus CB / Allen ein schönes WE - Chrizzy, 04.05.2002, 00:54
- Re: Metre Ravi zu einz. Minen. / Raubkopie aus CB / Allen ein schönes WE - Diogenes, 04.05.2002, 10:11
Metre Ravi zu einz. Minen. / Raubkopie aus CB / Allen ein schönes WE
Category: General Interest
From: metre (Ravi Metre)
To: kstewart23 (Bruce Stewart)
Date Posted: May 03, 2002 at 17:10:39
Subject: Re: gold stocks
Reference: gold stocks
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Key issues in selecting Gold Mining stocks seem to be (a) leverage to move in the price of gold (b) risk in terms of ability to survive extended decline in the price of gold or country risk suchas risk of confiscation in South africa for example.
Leverage works BOTH ways. Leverage is essentially determined by cash cost of producing gold from reserves,higher the cost more the leverage. If gold is at $300/oz and mine A has production cost of $250 and mine B has production cost of $150/oz, you can see that a $25 move on gold price means a lot mor to mine A - bot p and down. Leverage will be decreased to some extent if a portion of immediate future production is hedged in terms of gold prices. Leverage will be increased if debt/equity ratio is high.
Regarding risk of survival, if gold prices don't bottom soon - or hold recent bottom- mines with high cost, high debt and no hedging may not survive for shareholders value. IF South Africa goes radicl and confiscates mines, shareholders may be left holding the bag. North American mines do not have the later risk.
DROOY has among the highest leverage and would move up and down most with gold prices. It also has Soth Africa risk. ASA is a mutual fund of South African gold mines. NEM has lower risk due to lower cost and lower political risk.
DROOY is the way to go if you want to hit pay dirt if gold prices shoot up, but it has high risk if gold prices linger in downtrend too long. NEM has one of the lowest risks among the unhedged.
So it is a mattter of risk reward as to what you choose and how much you put in. For heavy investment, I would think NEm is the way to go. For a speculation on small percent of networth DROOY is the way to go on a pullback.
In terms of valuation the key proven reserves and cash extraction costs per oz. adjusted for debt.
Hope that helps. IF anyone in the discussion group thinks that I missed something big here, please do the favor of bringing it up.
Ravi
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