Stockhouse Movers & Shakers: Trolling for undervalued gold stocks

Peter Kennedy Peter Kennedy, Stockhouse
0 Comments| December 15, 2011

On a recent day when gold was down 4%, Michael Fowler was trolling around the junior mining space looking for undervalued situations to add to his Christmas shopping list.

For a man of Fowler’s experience and background, this wasn’t difficult.

An English geophysicist, he was part of a team that discovered the Cigar Lake uranium deposit in Saskatchewan the early 1980s. After switching to the investment business in 1987, he has worked for many venerable names in the Canadian brokerage sector, lately as a senior mining analyst with Loewen, Ondaatje McCutcheon Ltd. in Toronto.

“It’s like a Christmas sale out there,’’ he told Stockhouse during a telephone interview this week.

Due to softening bullion prices and widespread disappointment with efforts to resolve the European debt crisis, he says risky assets are being sold “like you wouldn’t believe,’’ leaving beaten down share prices almost everywhere he looks.

“I think the market is really oversold,’’ said Fowler, who in his role as senior mining analyst with Loewen, is heavily focused on small cap mining companies with market caps in the $25 million to $50 million range.

Here are some of his stock picks:

Fire River Gold Corp.’s (TSX: V.FAU, Stock Forum) key asset is the Nixon Fork gold mine, which is located in the Tintina gold belt in central Alaska. Having kickstarted production in July, 2011, the Vancouver junior is aiming to reach a target rate of 50,000 ounces annually by the summer of 2012. “It has actually had some startup problems,’’ said Fowler. “But the grade of the deposit is very high at over 20 grams per tonne and we think they will get some good cash flow out of it." Trading at this 21 cents this week, Fire River has a market cap of $20.5 million, based on 102 million shares outstanding. The 52-week range is 59 cents and 19.5 cents. Fowler has a speculative buy rating on the stock and a $1.40 target.

Moneta Porcupine Mines Inc. (TSX: T.ME, Stock Forum). The company has outlined a NI 43-101-compliant resource for its wholly-owned Golden Highway project near Timmins, Ont.  The estimate includes an in-pit resource of 2.3 million ounces and an out-of-pit resource of 859,100 ounces. “They are very undervalued with good cash and good expansion potential,’’ said Fowler. He has a speculative buy rating on the stock with a target of 95 cents. Trading at 19 cents this week, Moneta has a market cap of $30 million, based on 157.3 million shares outstanding. The 52-week range is 48 cents and 13 cents.

Northern Freegold Resources Ltd. (TSX: V.NFR, Stock Forum)  The company is developing the Freegold Mountain gold and copper project in the Canadian Yukon, northwest of Carmacks.  In February, it released an updated NI 43-101-compliant resource estimate for the Nucleus deposit, which is thought to contain 1.4 million ounces of gold equivalent ounces in the indicated category and 900,000 ounces in the inferred category.

“They will probably end up with something like four million ounces of gold,’’ said Fowler, adding that in his view the Freegold Mountain project is located in a good part of the Yukon where there are a lot of roads and power lines.  He has a speculative buy rating on Northern Freegold and a target of $1.44.

Northern Freegold is also exploring the Burro Creek property in Mohave County, Arizona, which covers 3,000 acres and is located 265 kilometres southeast of Las Vegas. It hosts a NI 43-101 compliant indicated resource of 75,600 ounces of gold and 2.7 million ounces of silver, as well as 43,200 ounces gold and 2.2 million ounces of silver in the inferred category.

Trading at 19 cents this week, Northern Freegold has a market cap of $24 million, based on 111 million shares outstanding. The 52-week range is 39 cents and 18 cents.

Allana Potash Corp. (TSX: T.AAA, Stock Forum). The company is developing the Dallol potash project in Ethiopia, West Africa, with backing from the International Finance Corp. and Liberty Mutual Group. “The short term is a little bit difficult for them,’’ Fowler said. “Potash is in a slump at the moment and this is affecting some of the share prices [in the sector] as we speak.” However, Fowler is confident that this is a “short term situation,’’ and he retains a buy rating on the stock, with a $2 target. Trading at 85 cents this week, Allana has a market cap of $168 million, based on 198 million shares outstanding. The 52-week range is $2.43 and 61 cents.



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