Our monthly report shows strong recovery from the $34 low in June but still only at Dec/11 levels
Stockhouse Ticker Trax is equity specific research (Canadian listed and market cap < $300 million) published every Monday to paid subscribers. Our free Friday column may feature companies previously featured to paid subscribers (with a minimum one month delay) or discuss topics of interest to the general investment community and relevant to overall portfolio management.
The U.S. Federal Reserve’s decision to spend $40 billion a month purchasing mortgage-backed securities was very welcome news to gold investors.
The government has committed to buying bonds until the job market shows substantial improvement. They will also keep short-term interest rates at record-low levels through mid-2015.
The concern is that this will fuel inflation (and it likely will) and gold bugs couldn't be happier -- unless of course the price was trading closer to $2000 per ounce.
Junior gold stocks
This summer we saw valuations on junior gold stocks hit record lows as the average (for 53 we monitor as a benchmark) hit $34 in June. For the past month I have seen that number clean up nicely but it was the Fed news that changed sentiment considerably – combined with long-awaited debt support from the European Central Bank.
The average as at September 21st was $46 per ounce.
This is a number we have been monitoring since December 2011, when the average was $45 ($40 in August 2012). I track only companies with a market cap below $300 million on the TSX and TSX.V and a minimum one million gold ounces based their most recent 43-101 report. The market cap is compared to their net cash value and we risk the reserves by only giving a company credit for 20% of their Inferred resources.
Of the 53 companies:
19 were valued below $20/oz
13 valued between $20 and the monthly average of $46/oz
16 valued between $46 and $100/oz
5 between $100 and $138
Below is a snapshot of the table that we publish to paid Ticker Trax subscribers:
While share prices have definitely been improving in September, a person has to be careful as the numbers can also be deceiving.
I have noticed that many valuations per ounce are going up because not only is the share price rising, but equally important - the cash value per share is going down.
Many companies have burned through a lot of their reserves in 2012 and will need to finance soon. This summer it would have been virtually impossible for all but the best companies to raise capital but with the increased activity in September, that environment is improving.
Before you jump into any new gold speculations, be sure to check their balance sheet carefully. Depending upon their activity levels this summer (with respect to drilling and exploration), many will be in desperate need of cash (and this will also lead to further share dilution).
This Monday the 24th I will be emailing the updated Gold Valuation Table to paid Ticker Trax subscribers. This report is updated and sent monthly.
In addition to this weekend column and the bottom fishing research sent to paid Ticker Trax subscribers on Monday, I also provide FREE MicroCap alerts throughout the week. These are based upon News or Abnormal Price/Volume Activity on the several hundred stocks we track from our own research, brokerage analysts, or third-party newsletter writers.