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Which small cap gold stock is Roger Montgomery currently buying?

Media Room, Radio

Which small cap gold stock is Roger Montgomery currently buying?

Roger Montgomery and Ross Greenwood talk gold, commodities, inflation and the US economy on 2GB Money News. Listen to Podcast.

INVEST WITH MONTGOMERY

Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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170 Comments

  3. richie
    :

    sorry guys I have to chime in and have a go to!

    I think the mystery gold stock is INTEGRA

    Based on the forecast profits I have an i/v of 84c

    It is trading @ 49c atm

    • Rob
      :

      Aww Richie, I wish you were right.

      I hold Integra and have been a follower of Chris Cairns for a long time.

      But, IGR is a speculative stock and I’m afraid there is no way it would tick many of the value.able boxes.

      Roger’s pick, although small cap, would have been a good quality gold stock. I have to renege on one of my earlier posts because, although it has produced some excellent post from Mal, Steve et al, the gold bug has really bitten this blog.

      I’m hoping Roger posts another blog before Easter, so we can off this golden merry-go-round.

      This one has been very useful tho’.
      Cheers
      Rob

      • Andrew
        :

        Hi Rob,

        No gold bug here, in fact i have just noticed this post. Gold and investing in the same sentence triggers the ignore function in my brain but thought i would check it out.

        I think the fact that our market is dominated by all types resource stocks and the storys of company’s who go from 0.01 a share to heaps more than that means that people get excited about the whole thing. Perhaps not a lot has changed in the hundreds of years since the first gold rushes.

        Some of the posts here have been quite interesting, but i will still leave it to everyone else to invest in. Just some colourful metallic rocks to me. But people do seem excited by the fact Roger is buying a gold company, the retail blog which was more publicised is only on 73 or so posts.

        Hope you all have a good easter

  4. nevada
    :

    cost of production = profitability when prices drop

    mine life very important

    sovereign risk very important
    that could be a problem with mml i hope Rogers gold stock is not an
    gold mine in Zimbabwe trading at large mos lol

    the grades makes little difference cost of production covers that
    anyway.. low grades and lots of it ,can be much better . than high grades if you have to go deep .

  5. ron shamgar
    :

    Hi Everyone,

    After many long hours of research, I am pleased to present my top 4 small cap gold stocks. All of them are trading at huge discounts to their IV, and that IV is rising at a good clip.

    In addition, it seems that I am not the only one who thinks GDO is the best as management itself is considering buying out minorities!

    Here they are:

    GDO – “The very best” (Disclosure: I own this one)
    NST – “Up and coming young star”
    RMS – “The Good & reliable”
    SAR – “I’m also very good, but not the best”

    Now, there is no need to explain what these companies do – they all dig for gold – the important part is to understand the following:

    -the operating costs of mining the gold
    -how big are the reserves
    -the grade of gold mined
    -type of mine open cut/ underground
    -the political stability in the region

    To understand these, I highly recommend reading Mal and Steve l posts. They are extensive and insightful so no need to repeat.

    If you believe gold is heading up in the medium term, then one of these companies or a combination of them will provide exposure and leverage to this belief. And hopefully we get to make lots of money along the way.

    And if some of you are asking what am I doing buying gold stocks?

    Well, I can answer that by saying:

    “Why do people rob banks? Because that’s where the money is!”

    Good Luck!

    • Steve I
      :

      Please read up and think about the geopolitical risks in Africa. Think about the implications of very high food prices and oil shortages. I’m not saying south Africa is the highest risk, but it won’t be immune. Africa is likely to suffer significant conflict in the next decade. Personally I chose to steer clear.

      Stratfor’s second quarter forecast highlights the potential for labour unrest in south Africa so watch out for that.

    • Ash Little
      :

      LOL

      Why do people rob banks? Because that’s where the money is

      LOL I think that is very funny

  6. KB
    :

    I have GDO valued at $1.62 in 2011 and $2.07 in 2012 using a 14% RR. Using ~$60m NPAT in 2011 and $85m in 2012.

    Has some debt. Company is now finally hitting its targets after having ongoing problems and can be considered a quality mid-tier producer given its resource base and grade. One of the largest after NCM believe it or not.

    However it’s in South Africa so really doubt Roger would have his eyes on this one.

  7. Sav
    :

    Interesting discussion on whether gold is a commodity or currency. Apart from some very limited industrial uses and a bit of jewellery, my own take on it is that it is a currency, a store of value. Always has been. Always will be.

    Why? Why gold? Why not platinum? There are a lot of much more expensive elements out there. So why is gold it?

    I urge everyone to listen to the podcasts at national public radio, planet money. Download them all. They are fascinating. Podcast #229 deals with why gold is the elemental store of money. It is superb.

    They also did 2 later podcasts on the gold standard which are also worthy of listening to. Podcasts #252 and #253.

      • Ash Little
        :

        Yes thanks Sav

        I enjoyed them very much and have now put them on my fead.

        Not say I agree with all of it but it was very good

  8. Mal
    :

    I have heavily invested in gold stocks over the last year, and currently my largest investment by far is GDO. I doubt this would be Roger’s as it is probably on the riskier end of the spectrum. Currently trading at a market cap of ~350 million, with full year earnings in the vicinity of 80-100 million on current gold prices. They also have a very good new project (with good project economics) coming up (at pre-feasibility stage).

    Debt 62.5 million- convertible bonds (at current price would be converted into equity).

    The other 3 good goldies on the ASX are by far:
    MML, CGX and to a lesser extent RMS
    I discount RMS as the cash costs of the next mine are pretty high in the scheme of things.

    • Luke
      :

      Interesting. I don’t own any gold stocks but I thought I would entertain the GDO idea. I saw your excellent comment below – thank you for taking the time to write commentary on all of those companies!

      According to GDO’s latest quarterly update, they think they will produce 120,000 ounces this year at a total cost of around $650ish. With the current gold price that means about $66m NPAT or about 8c EPS (which incidentally is close to the commsec forecast).

      I’m sure the value.able graduates here can work out the IV of this company is significantly more than the current share price! However, as with all miners, they are price takers and I fail to see the utility of Gold. Also, I have no idea about the stability of South Africa. Does anyone here have a better understanding of GDO’s risks? It is the first Gold prospect I have looked at that almost makes sense to me.

      Cheers,
      Luke

      • Ash Little
        :

        Hi Luke The only other thing I will point out is that the debt in this company is all convertible bonds and will almost certainly convert to equity. The will change the ROE in future so why not adjust for it now

      • Matt R
        :

        Hi Ash

        I’ve had a look at the annual report for GDO, and I’m unsure about what impact the options and convertible bonds will have on IV calculations.

        Do you generally add the no. of options to give the total number of shares, or ignore it?

        Will the conversion of bonds into equity dilute existing shareholders equity? If so, how do you factor this in- by reducing the total equity by a similar amount?

        Cheers
        Matt

      • Ash Little
        :

        Hi Matt,

        The debt will almost certainly become equity so I treated the debt as equity. I information is available under announcements to calculated how many new shares will be issued

        Hope this helps

      • Jonesy
        :

        Conversion of bonds into equity will dilute existing equity and it will affect intrinsic value. It will have the effect of increasing total equity / book value thus reducing the return that you get on that equity. You’d factor it in by adding (not reducing) the converted bonds (at the conversion price) to total equity.

      • ron shamgar
        :

        i have relatives in south Africa in Johannesburg which is 30km from their mine and they r experiencing power blackouts regularly. don’t know if mine has its own power generation. just a thought.

      • Mal
        :

        I think there are a few risks to consider, in general regarding gold miners, and in terms of GDO specifically.

        1. POG
        The number one risk is the price of gold. It has gone up substantially in the last few years and the *I personally believe it is just playing catch up*. To put this into context, if gold were to drop back down to 800 (where it did during the GFC), there would be severe supply shortfalls. Although the biggest and best mines run at an opex of up to 400-500 (these days), when you consider exploration, risks, capital development, the overall cost per mineable ounce in much closer to 1000 USD/ounce. You can have a look at the goldnerds website for a better look at this actual figure. I think it is highly unlikely to drop to this level, as many mines would be uneconomical.

        The interesting thing with gold is that it is a precious metal, and it is very hard to increase supply. Whereas other markets are relatively elastic and respond (albeit delayed) to increased prices, the supply of gold is only just picking up, and even then, small price shocks will make a lot of deposits uneconomical.

        I think it is wise to work out a price of gold figure into your calculations if you are a conservative investor. MML with opex at 195 is still going to be profitable no matter what price gold is. NAV with cash costs at above 1000, is barely economical as it is. GDO, RMS, SAR are in between, but have a pretty healthy margin.

        2. South Africa nationalisation
        I think this is overblown. A lot of the drama was related to the NKP platinum debacle, although even that seems to have settled (over a lengthy period of time). The youth president of the ANC continuously mentions nationalisation, but mining is one of SA’s major industries and *I think* it would be too damaging to the economy to nationalise. Irrespectively, they would have to pay a large amount of money for whatever assets they choose to take.

        3. Operational risks
        GDO has its own power- not an issue for Modder East. The smaller Sub-Nigel mine (basically a training site) has potential issues with flooding (which would be in some 9 months time, with heavy rain throughout), but GDO has flagged this and could easily move everything to ME.

        I think it’s important to note that there is a reason GDO is cheap. It has had its problems. Last year there was a strike, (which has since been resolved) but meant they didn’t hit the target for 2 quarters. More importantly, there was significant insolvency risk as the convertible bond holders (debt 62.5million), had a right to payout at the end of last year- which 100% of them elected not to do. Now GDO is in the driving seat as the bond holders can convert into equity at 0.38/share at the end of next year, or if the share price hits 150% of that figure (I think its ~ 58c) GDO has the right to buy them out. The balance sheet is healthy with cash and receivable up to 20 million now, and the only reason it is that low is because GDO are employing the equity to fast-track the second mine, and to get the flagship mine to steady state asap. Expect the balance sheet to improve dramatically over the course of this year (if gold price stays where it is at).

        The best way to figure out these risks is to look at production reports- and GDO has hit its targets (overshot actually) for 2 consecutive quarters. Interestingly they had targetted 25000 ounces this last quarter, and 2 months in had mined 18000, but only finished with 26. The reason for this is that they milled some low-grade stockpiled ore. If they went at the rate they were going, next quarter’s target of 28000 is highly attainable. I would also expect the grades to pick up a little bit, and hopefully bring down cash costs. However, in the high price of oil environment- expect all the miners to have higher than expected opex.

        Overall, this is not a low-risk stock, you need to understand as much as possible so that you won’t get itchy fingers if the price drops on any particular day.

        I don’t know how you got NPAT of 66 million by the way.
        120,000 ounces * (1450-650)
        = 120,000 * 800
        = 96 million USD
        ~ 90million AUD

        Hope this helps,
        Mal

      • Roger Montgomery
        :

        Great Stuff Mal. Actually brilliant and thank you for taking the time to write. Just one observation – I have never seen the economic cost of any commodity act as a floor in the price for any commodity. If the economic cost of an ounce of gold is $1000, that alone is no reason to believe it cannot fall below that level. The fact that marginal producers lose money and cease production is one of the very great reasons we have a commodity cycle.

      • Ash Little
        :

        Thanks Mal,

        Can you please let me know how you know so much about this area.

        Your knowledge is fantastic

        Keep up the great work

      • Mal
        :

        There’s a lot that I don’t know Ash! I have basically only utilised online sources over a period of 6 months or so to understand these gold producers (that’s all I have time for!). But there’s a whole lot of trash out there, so you have to be careful with what you read (especially with other online forums).

        I have personally found that looking through the publicly available information available via the ASX is where most of my knowledge comes from. I have followed a number of gold stocks, and have always been trying to work out why one is better than another. My usual order is to try and find an investor presentation for a particular company- see what it promises, and then see the results in the quarterlies. I read the broker reports of the companies I actually invest in, but I find that they use a lot of jargon, and make random assumptions that make do not necessarily make logical sense- but it does give you an insight into how other people value a company.

        Most investor presentations explain the mining techniques, grades etc, and after you have read a few you notice what the important figures are. It’s actually pretty easy to compare across the miners to see which ones are better. A LOT of the juniors report very reasonable cash costs- but it doesn’t reconcile with the balance sheet (a good place to start would be to compare IGR with SAR).

        Overall, what I’ve written up is a synthesis of whatever I’ve gleaned from various sources, it’s always a work in progress and it takes time! I’m sure there are others out there that have better and more efficient sources of data

      • Ash Little
        :

        Hi Mal we all appreaciate you work.

        You can get some really good info on line as you have shown.

        Have you thought of a career change to being a Mining analyst.

        I think you would do really well

      • Peter M (Mully)
        :

        Thanks for your two excellent posts which have served to:

        1. educate me;
        2. confirm how little I know about the resources sector and gold in particular;
        3. remind me how important it is to clearly understand the sectors and businesses in which one chooses to invest.

        Thanks again Mal. I consider myself fortunate to have had the benefit of your knowledge and wisdom on the subject.

      • Steve I
        :

        Mal,

        Re the POG. It isn’t playing catch up. It is finally being treated as an alternative currency and is facing a tide of fiat currency.

        In 2008 treasuries where the safe haven. At this stage treasuries have no buyers. Precious metals will be the safe haven now.

        Any drops will be volatility based and liquidity driven.

  9. Brad
    :

    India GDP per person $2k
    China GDP per person $4k

    These guys are building countries and what do they need: coal, iron ore, copper ….

    We’re far from done

  10. Harley
    :

    Firstly, RMS dropped substantially this morning despite an announcement extending the life of Wattle Dam and guidance of 13000oz/month. I think this suggests a few assumed this was the stock Roger was buying and have sold subsequently? To holders of RMS, the announcement is in my opinion a positive and suggests strong cash flow while they work on getting Mt Magnet to production. Steve I, Ash, (and others) I know you are holders of RMS, what are your opinions of the announcement?

    Thank you for this post Roger. Because of it I spent some time researching gold stocks and found a few worthy of closer inspection that I am considering an investment in.

    • Peter M (Mully)
      :

      Not sure what caused the drop today (the market is a strange place) but I thought it was a positive announcement and viewed it as an opportunity to accumulate.

    • Steve I
      :

      RMS is very volatile, which I have stated previously.

      Sometimes you think the price should be going up and it goes down and visa versa.

      I’m not worried about their life of mine as it is my understanding that they don’t bother drilling to increase their resource count until they need it. Whilst this understates their resource figures, it saves them money and is good for cash flow. They know what is in the ground (it seems to me).

      I took this news as possitive. It means good results for the next couple of years. Beyond that – who knows? Doesn’t mean they are running out.

      RMS has had a huge run recently, so its not surprising to see a pullback. I don’t follow technical analysis, however it seems to work a treat for RMS for some reason – it has a great trend (I don’t trade – ever). Its probably due for this, however it does seem a little overdone with the good news and strong gold price.

      • Ash Little
        :

        I would like to agree with steve.

        The short term movement of the share price is just not applicable. Ignore them

        Plus it has to be a positive if they can get 150K oz/year instead of 90K oz/year out of their main mine. Potentially just pulling revenue forward but that can’t be bad

  11. nevada
    :

    silver lake slr is a good gold stock they have strong growth profile
    and is fairly low cost producer expanding capacity lakewood
    and have had strong drill results and resource uppgrade, i just bought some used to own them in the past i am not very good at valuing but i have value rising if gold stays high that is
    slr rms mml are the best quality and fml is more riskier play me thinks

    cheers

  12. Joab Soh
    :

    Room,

    Like some of you, I was never that interested in gold until this post, which out of curiosity, I started digging.

    My starting point is to ignore the “prospect” of gold. As I can tell from many high conviction value investors here, there are mix views.

    So I started considering their competitive advantage. Although gold producers are price takers but like any other business, shouldn’t we be focusing on their cost of doing business? Similar to JBH, if a gold producer can constantly reduce their cost, they will be able to maintain profitable margin even if gold prices fall. From this perspective, I fail to understand the amount of skepticism on gold producers compared to retailers. From JBH perspective, I don’t see prices of the things they are selling going up, and yet, we loved JBH for a long time.

    Although there are no ‘product differentiation’ (think ORL), doesn’t that make commodities producers easier to understand because we only need to worry about quality (grade), quantity of resource and cost of extracting/producing/shipping?

    If one also consider JBH or Apple’s distribution network as a competitive advantage, then shouldn’t we examine the transportation cost to export what they have produced? (distance to nearest port and access/cost of shipping)

    Lastly, going back to ‘prospect’, if ignoring TLS and buying VOC is such an easy choice, then we must keep looking at the fundamentals of specific company, not the industry.

    I am no expert in this area and this is my attempt to break down commodities producers into aspect which I can understand.

    Also, I was hoping there are some healthy discussion around cost of producing rather than just gold prices. Or even a starter guide to the jargons used in commodities producing companies.

      • Gavin
        :

        Sometimes the light at the end of the tunnel is a train.

        Low cost commodity producers are easy to find. Just wait for the bottom of the cycle. They will be the ones who are still making a marginal profit. Everybody else will be seriously bleeding or dead.

        That’s the time to buy them for the long term as well. Other times people tend to price them like the cycle is dead and they become too dear for anything other than timing the upswing.

        Incidentally you get low on the cost curve by having large, high grade well positioned reserves. The question is who should benefit from this economic rent? Don’t think we have heard the last of Resource rent tax either here or abroad.

    • Steve I
      :

      I like to think of miners (producers) the same way as retailers. Explorers are too speculative for me as it is really hit or miss.

      Price.
      Is the commodity price rising or falling? What are the future trends? Is it certain or uncertain? Is there competition that will drive down prices, if so when will it happen?
      Compared to retailers – can they increase prices? What are the trends? Is it certain? Is there competition, what will happen to margins and when?

      Cost.
      What are their margins? Can they control and reduce costs? Are there any possible unexpected events or risks? Do they have low debt?

      Expansion.
      Can they build new mines/stores? Can they do so whilst keeping costs low? Can they do it organically or are they doing it via debt or acquisitions?
      In the case of miners, organic growth comes from both having the right resource and also the right people (geologists). Some people find nothing from a resource whilst others can have huge results.
      Opening a new retail store or platform isn’t guaranteed to be a success. It comes down the the management knowing their markets. Same thing applies to miners – it depends on the expertise.

      Capital raising
      I think capital raising should be viewed the same way for each. If they need capital raising to simply survive, it is bad. If they have cash, but need more capital as they have fantastic opportunities and expansion is brought forward then it is good. Think of Matrix. They are raising capital in the face of strong demand, high oil prices and to speed up the process – it is good. The same thing is happening to FML at the moment. They have too many good opportunities that they can start right now. They have strong cash flow and could have funded future growth with 100% cash. However with strong prices and too many good opportunities, they decided to bring it forward and have completed a capital raising.

      Retailers or miners?
      Well, it is probably clear that I prefer miners at the moment. Don’t get me wrong, I’m not a perma-bull and I’ll be looking at retailers when the time is right.
      Retailers are fighting rising input costs and a weak consumer and higher interest rates down the line.
      Miners have some rising input costs (wages and fuel) which they can minimise with the right choices (e.g. cost effective projects) but they have significantly higher rising prices.

      Therefore, I prefer mining companies because I see huge inflation coming (and/or inflation expectations), interest rates and fiat currency problems. Retailers and many other companies can find it very difficult to maintain margins in an environment like this. Personally, I want to invest in the right sector and in significantly undervalued companies.

      The sectors I invest in right now are gold, oil and gas. I’d like agriculture, but I need some ideas as we seem to be limited in choice. However there are many gold, oil and gas companies that I can invest in that are priced significantly below their intrinsic value and the value should be rising significantly over the next few years.

      • Travis Adams
        :

        Excellent post Steve, great contribution.

        I remain wary of resources stocks generally although there does appear to be some temptations.

        Resources stocks rely on higher resources prices which is totally external to the company and totally unpredicatable. The current high prices may continue for some time but as in 2008 commodity prices can collapse very quickly although i dont expect a GFC anytime soon.

        High prices stimulate supply and the current supply gap that is in resources will close as we are seeing with the massive resoruces being pumped into iron ore at the moment. When the price falls however is anyones guess.

        These stocks are not ones that you can sit and hold forever. You must look to get out at some stage and consensus data will not tell you when the music stops.

        Be very careful in this sector because there are no hands on this clock.

    • Mal
      :

      Joab,

      You are absolutely spot on. I look at 2 things when looking at gold producers.

      1. Cash costs (operating costs)
      The lower the costs, essentially the more pure profit and the greater margin. Also less risk if price of gold tanks. The really big gold miners (Anglo/ newcrest/ Barrick/ Goldfields) like cash costs at or below 400. Some of the small producers in Oz are producing at a much higher cash cost.

      The cash cost mostly reflects the quality of the gold in the ground (the grade) rather than managerial excellence. In terms of grade, for open cut mines, lower grades of 1-2g/t are economical, whereas for underground mines, you really want to be hitting much higher grades. Medusa has the lowest cash costs (~190) on ASX, and is up there worldwide in terms of quality. RMS Wattle Dam is high-grade, but Mt. Magnet is actually pretty average (400/ounce, 900/ounce respectively).

      A couple of things to note.
      – Even though opex is low, if there aren’t enough reserves, the overall cost per mineable ounce is pretty high. This figure is the really important figure, but is pretty difficult to calculate, and we try to estimate with by knowing reserves.
      – Figures tend to stabilise once a mine gets operational (ie they tend to decrease over time)

      2. Reserves
      Helps to work out the the duration of a cashflow. Bigger reserves are better. A couple of things to note:
      – You have to look at the overall grade of a reserve- sometimes miners increase their reserves by reducing the economical grade (particularly when gold price goes up). You have to factor in higher cash costs for this increase.
      – Some massive reserves are inaccessible. CTO is the cheapest on a lot of metrics, but if you look at how hard the gold is to get out, you will realise why.
      – Some of the better managed companies tend to continually upgrade reserves. You have to pretty carefully comb through reports to work out the scope for improvement.

      The really good mines have big reserves, are open-cut and are high-grade. Unfortunately, as gold has been mined for thousands of years, the best deposits are all gone!

      I’ve written a few points about the goldies I know:

      1. MML
      Awesome mine- excellent resource, very low cash costs and upgrading processing plant, should be at 200000 ounces by 2013. They are also sitting at what looks like a very nice porphyry down South at Bahanalig (I think thats how you spell it from memory). Absolute standout out of the juniors, but also for the same reasons, very expensive.

      2. CGX
      Another standout. Open cut operation, big resource and reserves, with massive potential (Have a look at King King deposit). Cash costs a little higher ~ 600/ounce, but likely to come down when operational efficiencies kick in. Approx 50000 ounces are hedged at ~950/ounce for the next 3-4 years, so they are not as hedged to the gold price, but they are looking to produce 200,000 ounces this year. To offset this, I think they have some favourable currency hedges, but hard to calculate exact benefit.

      3. RMS
      Wattle Dam has high grades and will continue till 2013. Mt. Magnet is pretty ordinary in terms of opex, but has relatively low capex. I discount RMS due to the relatively low quality of their reserves.

      4. MCO
      – they have a very high grade underground mine, with a big gap zone that hasn’t been explored. Ore from the Maxwell reef is at 27g/t which is better than the average 20g/t that MML is digging. BUT plagued with operational problems, hence the low price. It is one to watch, if they manage to get operational, they are potentially sitting on a very nice mine.

      5. GDO (disclosure- I own)
      – Excellent reserves and resources. Be careful at looking at the resource though- I think they have 20 million ounces, but 10 million is deep underground and 6-7 is readily accessible open. They have a flagship modder east mine, currently producing at total cash costs of ~700/ounce (inclduing capex), but over length of mine at about 450-500/ounce. Will produce 120,000 ounces this year, but management are hitting targets.
      They have a prefeasibility for Ventersburg due very soon- and this looks like it will be better than (their very good) flagship ME project.

      I have personally avoided SLR, IGR until they can show they are making money.

      Cheers
      Mal

  13. Michael P
    :

    Well, my stock screener tells me there are 287 ASX listed companies classed in the ‘Gold’ industry. 43 made a profit last FY, and of these 22 have positive cash flow per share. I’m down to 12 with a ROE greater than 14%. Of these, a couple have far too much debt for my liking.
    Doing the IV on the others, leaves about 6 candidates, with market capitalisations from $30m to $1.4b, 4 of which operate mines outside of Australia.

    • Peter M (Mully)
      :

      And one of those would be DRA which ticks most of my quantitative assessment boxes and is trading a a substantial discount to it’s IV. Just my view and not a recommendation to buy/sell without doing your own research and/or obtaining personal professional advice.

      Disclosure: I do not currently own DRA.

      • Steve I
        :

        My only concern with DRA is their resource base. I’m not sure if this is founded or not. It takes quite a bit of investigation to get a good understanding of the resource.

  14. James
    :

    Hi All,

    Is there a way to measure to intrinsic value of a commodity such as gold, copper, oil etc…? Sure one can look at the drivers of why oil may rise or fall but this may be already priced into the commodity, thereby leaving little or no margin of safety for investors.

    I would much rather look to mining services companies (as Roger has ingrained into us many times before) than trying to work out whether a particular commodity will rise (through ETF’s or stock selection.) It seems much less risky and a way (if you can pick the right company – i.e. MCE) to make money.

  15. Lloyd
    :

    Calling all gold bugs.

    Look at KCN 2010 results – definitely an MQR A1.

    But before you get all excited just beware of the the the problematic nature of the analysts consensus 2011 forecast – very hard to reconcile with the shabby H1 performance and the rapidly deteriorating H2 production guidance.

    To paraphrase Mark Twain, there is potentially more than one liar standing beside this hole in the ground!

    But feel free to jump in if you are so inclined, compelled by the consensus ….. because on consensus estimates it is trading well below the consensus based IV (but way above mine).

    • Steve I
      :

      KCN looks okay to me but doesn’t scream buy. The recent fall in price has created some value that did not appear previously.

      I don’t like the fact that they are taking on a debt facility of around $130m (around now) and also have increased there shares outstanding by around 30% with the acquisition of Dominion. I personally prefer miners with no debt and that can increase production organically and/or with cheap acquisitions with cheap/self-funded expansions. For me, this de-risks the investment significantly.

      I’m not saying that KCN is bad, but it doesn’t tick all the boxes for me.

      This is why I prefer Medusa as my ‘lower risk’ gold miner. Lowest cost production, huge resource and growing to 400,000 ounces self-funded.

  16. Ash Little
    :

    Hi Room,

    Just my view on GOLD

    About 12 months ago in a very obscure part of the blog Roger asked the question on what anyone thought of Gold.

    Due it it’s positioning it did not get many replies 2 or 3 at most. I was one of them and at the time I said that gold was trading as a currency not a commodity but eventually it would revert back to its commodity status

    My reasoning at the time though not put in words were eventually the world would settle down, we would muddle through the problems and the US would eventually come to their senses as they have in the past and start being more fiscally and financially responsible.

    My view turned 180 degrees when the US announced QE2 as it showed they would print any amount of money to avoid a double dip and to reflate asset prices. The US economy is in a mess but they refuse to pay for the excesses of the past and will just keep printing money.

    In previous financial crisis over the last 80 years countries devalued their currency, took the big inflation on the chin and traded their way out of the problems.

    The US dollar is the world’s reserve currency so it has wide ranging repercussions on the entire world to do this strategy. But do it they are.

    The rest of the world is waking up to the US dollar’s very flawed nature. It is only a matter of time before the US currency is no longer the world reserve but unfortunately there is nothing to replace it. The Euro is destined to cease to exist in the future. The Japan is not a consideration and the Chinese currency is not even free floating yet.

    The Chinese currency I assume will eventually become the reserve but that is many years off and the way the US are going there is going to be a gap between when the US is totally gone and when the Chinese are ready to take over.

    During that time it is my view that precious metal (the world’s oldest currencies) will be used

    As Steve I pointed out Gold is a currency not an investment

    Just my view so don’t get too upset if you disagree. That what makes a Market

    • Peter M (Mully)
      :

      An interesting perspective Ash which makes a lot of sense in the prevailing economic climate. That said, history shows that the United States is a resilient and determined nation with enormous capabilities especially when the “chips” are down. I wouldn’t write them off just yet.

      • Steve I
        :

        Sorry Peter, but they have no choice. This is a train-wreck and they have run out of options at this stage. Their only chance was to not bail out their banks and to not print trillions upon trillions.

        They can bounce back after all these problems have been expunged from the system. Look for US resilience in the next decade.

    • Ilya
      :

      I agree with Ash on most points but disagree on the most fundamental one. Gold is not a currency. Gold is money – real money. Gold was used a medium of exchange for thousands of years. Gold is an ultimate free market money elected by the people without coercion by the state.

      Despite of what some here say Gold has an intrinsic value – it is rare, it is desirable in all cultures and it is not free to produce. This is the main difference between money and currency – money is a store of value – it must have a value in itself. By comaparison currency like $US or $A has no vaintrinsic value. It can be printed ouit of thin air and created ad infinitum via fractional reserve banking. Which is exactly what’s happening right now on industrial scale.

      I would also like to address another point raised by many others, namely that they would rather own an income generating business than gold or silver. This is certainly true in a normal environment, but it is not necessarily so in highly inflationalry environment. For example what good is the ROE of 20% when inflation is running at 20% or 30%?

      I personally still own and buy stocks becasue they are still backed by real assets and are bound to do quite well in an inflationary environment. Certainly much better than cash and bonds.

      For those that are more interested in the subject, Austrian economics is the best source of education on the subject https://mises.org .

      • Steve I
        :

        Ilya,

        Currency is a medium of exchange and money. It is supposed to be a store of value. Currency does not equal fiat. Fiat is a choice of currency and one that the Austrian school understands. Unfortunately fiat is not understood by most people in western cultures. Asian cultures intuitively know that gold is money. I think we will have to re-learn this fact.

      • Ilya
        :

        Sorry, Steve. I should’ve added the word “fiat”. I guess I didn’t becasue all of the world’s currencies are now fiat currencies.

        In the past we had hard currency – gold/silver coins, soft currency – notes and coins backed by gold and silver, and the latest craze is fiat currency – backed by absolutely nothing of any value.

      • Steve I
        :

        And when the penny drops on the fact that there is no value backing the outcome will be interesting indeed!

    • Steve I
      :

      Wise words and its all true.

      Gold is always a currency, but as people start to realise that they need to put their trillions of worthless paper somewhere, there will be a tipping point and it will become very speculative (the gold market is small and there is too much paper currency). This will be the time to be careful and find the right exit point (if it becomes a bubble). However, an exit will require an alternative currency. Probably, assuming there isn’t an alternative to gold (I don’t think there is), they will reprice money in gold but this will mean that it won’t crash down like in the 1970s and might just level off. I’d just like to highlight the fact that this isn’t the 70s – this is significantly different.

      The comments in the media about the Yuan becoming a reserve currency at some point (even if it is free floating) never touch on the fact that for each dollar the US prints, China is printing it too in order to keep their currency peg. They have not been the beacon of prudence. This money supply issue is global and hasn’t been isolated to the US due to reserve currency status.

      At this point QEx is inevitable, although many don’t see this yet. There are no buyers for US treasuries now (or only a small amount). China has a slowing trade surplus in the US and therefore has less currency to place there and the currency they do have is seeking alternatives to treasuries. Japan has to keep its money for rebuilding. The government deficits are structural (institutionalised spending) and they cannot change their habits willingly. Therefore they will continue with quantitative easing.

    • Brad J
      :

      Hi Ash and Steve,

      Great insights and you are probably right.

      From my perspective it is all a bit too hard. I much prefer to stick to companies like MCE and VOC as I know that they will be able to charge a set amount for what they sell and it is unlikely to change in price too much. It is important as investors that we stick to our own areas of competence however I find this subject very interesting so thank you.

      • Ash Little
        :

        Well said Brad,

        and may I point out that gold is not a big part of what I am doing ATM

  17. Jarrad Stuart
    :

    Hi Bloggers

    My favourite Gold Business in Australia is CGA Mining (CGX).

    I am not sure if it is Roger’s mystery Gold Company, but it has been my preferred gold company for some time (since $2.20 when written in the Eureka Report). Link to Eureka Report: http://www.eurekareport.com.au/iis/iis.nsf/pages/F7ACC8223C644016CA2577650009B354?OpenDocument

    I am optimistic that the Gold price will rise significantly relative to the USD. However, I believe that the AUD will rise against the USD given time. Therefore, I am less bulish about Gold relative to the AUD.

    Disclosure: I do not own CGX or any other mining stock because I do not understand the mining sector enough.

    Hope my ideas help the Australian Value Investing Sector!

  18. Kim Jordan
    :

    Funny podcast – I might try and grab this every Tues night – Mr Greenwood is more entertaining than Peter Switzer *_*
    BTW, I’ll listen on my iPad via ‘TuneIn Radio’ app – brilliant little thing.

    • Ash Little
      :

      Hi Kim,

      I always forget to listen on tuesday night but the show is available on their website under podcasts the next day

      • David Edmondson
        :

        I’ve got subscriptions to Ross Greenwood and YMYC on itunes – just hit refresh every now and then and the list is updated, then you can select what you’d like to download. I find this easier than using the sky website or 2GB…and it’s updated quickly too.

      • Steve I
        :

        If Roger had a podcast I’d listen to it. However I’ll skip the itunes subscription for Ross.

      • David Edmondson
        :

        Indeed you can! Itunes tells you which one has Roger in it – download that and you don’t need to listen to the rest.

  19. Rob
    :

    OK guys, might I make a suggestion? Roger doesn’t deserve to be hounded about a stock selection.

    For further comments on this thread could we just please answer the question “Which small cap gold stock is Roger buying?” and give our reasons. And no, I don’t think the R stock should be mentioned because that’s been done to death and any further mention of it will be akin to ramping.

    And now as a complete distraction I hope Roger will let this one link slip through. It’s Jake Shimbukuro playing “While my Guitar Gently Weeps” on the Ukelele. http://www.youtube.com/watch?v=puSkP3uym5k. I think I’ve watched too much South Park but I half expected his fingers to be shredded to a bloody mess.

    Cheers
    Rob

  20. Gavin
    :

    Gold. Yaawwnnnn….

    I don’t see what all the excitement is all about. No cash flow, No IRR from good management compounding capital into a competitive advantage.

    If I was after a passive long term investment I would happily take the XAO accumulation index over gold (especially in A$). There wouldn’t be too many rolling ten year periods when you wouldn’t be in front.

    Sure gold can be leveraged through futures but that only reduces your committed capital not the size of your risk. (which should be based on your unleveraged capital base anyway)

    A return from gold requires timing and that makes it a speculation. I’m Surprised it has got so much attention on an investment blog. Maybe that should tell us something about where we are.

    • Steve I
      :

      No cash flow? For some it is 50% roe and all cash with significant upside depending on your outlook. Nothing speculative in it for me. Just makes sense.

    • ron shamgar
      :

      or maybe NST??

      I’m actually enjoying this as i’ve never looked at mining companies before. never owned and probably never will. but the last few days i’ve been doing some research and i have to say that some of these generate huge amounts of cash. there is no moat whatsoever, but if u believe in what Jim rogers/Marc faber is saying about gold prices going forward, than these miners will keep doing well into the future for as long as their mines can produce.

      some of these have high ROE +50%, lots of cash and I’m still not excited for some reason.

      BUT, I’m always happy to be convinced otherwise.

      • Steve I
        :

        Ron,

        Weren’t we debating commodities last month? Looks like you have had a significant change in view!

      • Kevin
        :

        I agree Ron i believe it is NST, i know roger disagree’s but i dont like that the director’s are selling especially when the business just started to make a profit.

      • Steve I
        :

        NST looks okay, but doesn’t stand out from other opportunities from what I’ve looked at so far. $5m profit last half if fairly low. I think they are having to reinvest a lot to keep their production going. I may be completely wrong, but thats where on initial look over.

        Also, have a look at DRA and SLR. I don’t own them or intend to at this stage, but they seem to have decent value.

      • Steve I
        :

        Hi Roger,

        I hope we haven’t been too close to the truth and it causes you concern Roger? Lol.

      • Ash Little
        :

        Nope Steve, I think we are all well off.

        I am fairly sure(99.99%) I found it this morning but I am not saying just yet.

        It is very hard to find but is at a massive discount to IV

        makes my gold stock look like a cigar butt

      • Lloyd
        :

        Ash,

        “It is very hard to find but is at a massive discount to IV”. This statement causes me to ask: Who has forecast the 2011 earnings on which the IV is based and what is their track record like?

        Remember that the liar standing beside the hole in the ground is not necessarily the miner.

        Regards
        Lloyd

      • MattB
        :

        I did a basic search for +ROE small cap precious metal (gold) producers.

        The following are the 2 that stuck out:

        TBR
        RND

        ..and a 3rd guess for sheer name association AAM “A1 minerals” :)

        Some more research required tomorrow.

  22. Steve
    :

    Regarding gold stocks I had a quick look at MML after someone mentioned it on Roger’s facebook page. I had a brief glance at some of the figures on Etrade and on the surface it looks to be another high quality gold company. No debt, very high rates of return on equity and appears to be growing strongly every year. I am yet to be convinced on actually putting any money into a gold stock but just out of interest I wanted to see if there were any small caps comparable to RMS

      • Greg Mc
        :

        It could just be me but I think I see more excitable comment about this as yet unnamed gold stock that Roger is buying than many other stocks Roger has mentioned. There seems to be something about this pretty metal that gives even grown men the vapours (or perhaps particularly grown men). I have to declare my interest – or lack thereof. I am not interested in owning gold stocks.

        I have some concerns. Some of the posts here give me the impression that people are applying less stringent criteria than normal. Gold may have been in a good place in recent times but, are people considering issues such as competitive advantage, cost of production, the other typical problems with mining plays, problems predicting the gold price 1, 2, 3 years from now? When so many people enthusiastically tell me that gold has a one way ticket to the stratosphere my contrarian nature makes me want to avoid eye contact and back away. If anyone can tell me with reasonable certainty what the future gold price will be, well you must be much smarter than me. Incidentally, I have no idea what the gold price will do but I do know that humans are programmed to assume the continuation of recent trends. It may well do that or even leap higher, but are people pausing to consider what things could happen that could derail it and what would that then do to IVs? I’d rather have fewer unknowns.

        I also fear that some may have made assumptions about what this stock might be and acted on them. *Wow, if Roger is still buying then it must be a great buy! If we can work out what it is, we’ll all be millionaires!* I would hope it is not so but I suspect that some people have had a dabble when they know little about the mining game and have not done the work to determine whether it is sensible for them.

        As an investor, I don’t consider myself worthy of polishing Roger’s shoes and if he is buying something, then it could be pretty good. However the fact that I know less about this game makes me even less inclined to buy anything unless I am nigh on certain. There are just too many things that could go wrong with these sorts of companies for me.

        Don’t get too carried away, s’all.

      • Roger Montgomery
        :

        Hi Greg,

        Your point is very well made and it gives me a conviction that this particular stock may be purchased, held and sold without any discussion from me. Thank you for sharing your insights Greg.

      • Jeff Burnett
        :

        I would polish his shoes, might pick some tidbits….but you can keep your goldstocks……been there back in 86 and 87

        Good luck!

        Jeff

      • Steve I
        :

        Roger,

        You have made it known that you view commodities as a viable asset class, have significant experience and knowledge in this area.

        I think there is a conflict in many value investors views with commodities, which might have been influenced by many comments made by Warren Buffet. However I think that there are times when there are differences between what is said and what is done.

        I understand that you will have pressure to stay towards mainstream views. It seems to me that you bring these topics up due to the fact that you are honest and genuinely wish to share knowledge. It seems also likely that you sometimes regret raising some topics due to the negative sentiment that it can generate.

        Either way, I understand the predicament and it is your blog. If we need to keep within the bounds of industrial stocks, that’s fine, but it is a shame.

      • Steve
        :

        I agree – the mention of a gold stock certainly seems to have generated more fervent interest than usual. I often wonder why Aussies are so enamoured with resource stocks. Perhaps it is that apparent Australian love of gambling (not me!). A perfect example is the massive amount of calls on Your Money Your Call regarding small resource stocks. It bores me to tears! I’m personally much more interested in strongly performing industrial companies. Something with at least some predictability

      • Jeff Burnett
        :

        Hi Steve

        I could not have said it better!!….but have you noticed that when RM is on YMYC that there are less resource stocks asked about and more of the industrial type.

        Jeff

      • ron shamgar
        :

        roger, u cant just tease us and not tell! :-)

        and Greg, just because roger buys something doesnt mean u should… i know a lot of people on this blog never purchased shares in matrix, forge etc…

        roger also mentioned he owns anz bank and atlas iron, i don’t see anyone going crazy on these stocks here on the blog…

        looking forward to your insights roger. cheers.

      • Greg Mc
        :

        You’re right, Ron. That was one of the points I was trying to make. In this instance I might have spoiled everyone’s fun.

      • Steve I
        :

        Greg,

        You say you have some concerns and your post is very detailed. I’d suggest researching this topic before forming your conclusions.

      • Greg Mc
        :

        G’day Steve I.
        I have researched this topic, and my conclusions are that this area of the investment world is not for me. That is not to say that it won’t suit other people – clearly it does. My personal opinion is that gold producers are less predictable in some respects than other businesses and as such, do not suit my particular circumstances (gold producers are certainly not the only things I leave alone, mind you). If these businesses do suit you, then by all means do what you think is best. Indeed, since I’m not yet bullish, maybe you’d better hold or buy more! (insert usual disclaimer here)

        One of my observations was merely that some of the comments preceding mine on this topic appeared to belong in a comsec chat room and there was somewhat less reasoned discussion. Maybe it was just harmless web based conjecture upon Roger’s latest purchase and no-one actually got excited and bought something they heard someone mention about something, thus rendering my concerns baseless. Maybe.

        Also though, I wanted to provoke people to remember our basic tenets of value investing. I don’t have a problem with Roger mentioning anything that he is buying whether it is an industrial or something else and I find it interesting when he does talk about things that I’m not especially familiar with. I’m just not about to dive in when Roger brings up something new and I’d hope that others don’t get carried away either.

      • Steve I
        :

        Hi Greg,

        I only had a dig due to the fact that you said the future price of gold is uncertain and that sime people say it has a one way ticket. If you understand the issues well, it is my view that there are inevitable conclusions about gold, until the issues are resolved one way or another.

        Gold producers are uncertain. However all businesses face uncertainty. In the gold producer space, uncertainty is reduced by quality management and a strong resource.

        Agree that some comments are definitely not reasoned, however I’ve seen with all topics. I guess that some posts can be both unreasoned and more enthusiastic when it comes to gold.

        We don’t know what Roger has purchased and I’ve made no attempts to do so. I just mentioned my personal holdings.

        I think some people get carried away from time to time. My proposition is that we discuss this topic with a well reasoned approach while always always using the value investment principles. I’d argue that the economic moat that quality gold producers have is simply a rising price of gold. This won’t always be the case, but there isn’t a time in the last century where it makes more sense than now.

      • Rob
        :

        While I agree with your sentiment Greg, I really don’t think there is any more interest or comment than any of the other stocks Roger has alluded to. Think Matrix, Vocus, Zicom etc.

        It’s more noticeable because it’s about gold, a resource stock or price taker. A bit like that certain colour car you never noticed before, that is until you decided to buy one.

        When talking about gold it is difficult to avoid puns and cliches but I’ll try.

        This is my opinion and I have no particular expertise and it should probably be regarded with caution.

        Gold historically, has had many different uses and it’s a finite resource. It’s been used industrially from electronics to aircraft windscreens, dentistry and medicine, jewelry and yes it was used as the gold standard.

        After Richard Nixon ended the US dollar convertibility to gold in 1971, the $US became a universal currency. Despite this, gold still remained a safe haven and hit an all time high of $850 per ounce in January 1980. It has remained relatively quiet since then and took 28 years to reach the same price. By the way, to break that record, in inflation adjusted US dollars, gold would have to reach $2200.

        Let’s not get excited about records, but rather look at why gold is where it is. The price of gold is measured in $US and for it to remain where it is in real terms it would need to as someone else suggested mirror image the $US. Gold’s climb coincides with increasing uneasiness over rising US debt. Whether, as the Gold bugs will have you believe, the POG was manipulated and suppressed is of little consequence, the rising debt and the falling dollar are doing their bit to support gold’s climb.

        The US recovery will be protracted and will most likely be accompanied by further quantative easing. With a national debt approaching US$14.5 trillion, I don’t see the dollar recoverying real soon. Times are difficult in the US, they need to do a lot to work their way out of this mess.

        Now I’m not a gold nut and think it will go to some crazy figure that has been bandied around but I cannot see it declining significantly in the next few years. The rise of the Indian middle class alone will ensure demand for some time to come.

        Now to Roger and his gold stock. I would like to see a blog on gold stocks and get his take on how, what and why he has selected it and how it compares to number two or three (or five or six) in the same sector.

        I don’t mean to make light of this but, we all know that it will be an extraordinary business, with great cashflow, good management, a great competitive advantage, at a good discount to IV and good and rising ROE and good future prospects. So it must be….just kidding. So Roger, you could make it detention work and give us extra homework on it and other similar stocks. Let your readers work out which one ticks all the above boxes. Damn! A cliche! I almost made it.

        I do declare, as I have done before, I hold certain gold stocks. I do not wish to name them (in this post) because we’ve already seen our quota of that certain colour car already.

        Cheers
        Rob
        Joining in the hugfest. What makes this Blog really good is the opposing views that are expressed. Please keep it up, this blog has a great feel to it and the content is top class.

      • darrin
        :

        HI Rob

        I think to have a blog on gold stocks would be a great idea and learning exercise.

        cheers

        Darrin

      • Harley
        :

        Rob I agree with your post. I don’t think people are anymore excited about this stock than if Roger was to post ‘What construction/engineering/financial/etc company am I buying?’

        Roger, I would also like to see a post on how we can compare resource companies (producers) to one another. Its a topic that hasn’t been covered because I think a lot of the followers of your value investing approach saw commodities as off limits. Personally I don’t agree when people claim investing in commodities (directly or indirectly) as being anymore speculative than investing in a company – provided you do your research. If you have looked in depth at future supply and demand, macro, risks, etc and determined that a certain commodity is cheap/will rise in price in the future (long term), how is that anymore speculative than doing similar research on a company? I know it is not an exact comparison but hopefully my point is clear. Of course, over the long term commodities revert to C.O.P but riding the trends has a lot of validity – Jim Rogers has made a fortune out of it.

        Personally, I would like to know why you (Roger) passed on RMS. I bought ZGL in the low 30c and when you later announced you owned shares I took it as an indication I am learning and progressing. However, I think it would be equally valuable to know why you passed on RMS (Wattle Dam mine life? Mt Magnet yet to be in production? Significantly higher C.O.P and lower grade for Mt Magnet compared to Wattle Dam?). Or maybe just a hint? eg have a look at ‘such and such’ in RMS’s annual report :P

      • Steve I
        :

        Harley,

        Very well said.

        We have already discussed on this blog the fact that the Australian market is small and some companies will mature relatively quickly. Therefore we may not be able to buy and hold for 20 years if we want to realise our expected rates of return.

        Therefore why not invest in commodities over 5-10 year periods where suitable?

        We have had a lot said about Matrix. This is a call on the oil price. If oil crashed and remained low for a long time, Matrix will surely struggle. Therefore investors in Matrix should have solid views on the future direction of the price of oil.

      • Kim Jordan
        :

        We don’t know for certain that he ‘passed’ on R_ _ (Roger, I didn’t mention it), we don’t know everything that’s in Roger’s portfolio – yet *_*

        As for resources, gold included, I will only make bigger purchases if they definitely are producers, and preferably low or no debt (there are some), and good tenements etc. And do make the occasional ‘gamble’ purchase, but on a much smaller scale.

      • Steve I
        :

        Rob,

        Just wanted to add that whilst the debt is alarming, the actions taken are the cause for interest in gold/silver. Specifically it just comes down to huge global money printing headed up by the US.

        Commodity cycle + money printing + safe haven + US losing reserve currency status = good for gold/silver.

        There are so many issues it’s something that you really have to spend time on to truly grasp the multitude of issues that we face.

        Gold is looked on as something speculative by some people but I’d like to reinforce that the opposite is true as gold is the ultimate risk free asset (not cash).

  23. Callan
    :

    Another good announcment from RMS today. Director put his money where his mouth is and bought a cool 500k worth of stock on market.

    The other small cap gold producer I like is NST. Similar story to RMS in my opinion…

  25. Scott T
    :

    Rogers new gold stock was mentioned twice in 2 days, I am sure we will find out which one it is when his fund has bought as many as required.

    All the best

    Scott T

    • MattB
      :

      I hadn’t had the time to research RMS and thought I’d missed the boat. Amateur mistake. Looks like I have a job for the weekend.

      I did some looking back through older posts. Mal mentions RMS on 9 Feb. Ash mentions he owns it in late March. By then the price has gone from $1-$1.40. It is currently trading at $1.55 ish. My logic is Ash has stated he loves (as we all should) big discounts to IV. That tells me that when I run the figures it will be under IV.

      I think someone has been taking a position in this one. Whether its Roger or not remains to be seen.

      The distant outsider is HCH but I’m basing that only on Roger already declaring to have owned it. Unless he received another Melbourne Cupesc tip:)

      Lesson learnt. Don’t assume price movement means you are out of the game.

  26. Ilya
    :

    I still think that for most punters owning gold or silver is better than owning gold/silver stocks. Mining is a very risky and costly activity. To be honset most punters, myself included, have very little expertise in the field to make smart investments and while Rogers method is great for valuing businesses, it is still risky for a resource that is rare and finite. Deposits run out, new deposits are hard to find and when found may have wrong grades, higher production costs and so on… Just see what happened to Dominion Mining from A1 hero to zero in a very short space of time.

    If we all agree that gold and silver are set to rise why not own the resource and protect your resource virtaully risk-free? Silver is up %95 in the last 12 month or so. Very few stocks can beat this.

    In fact I would argue that gold and silver are virtually guaranteed to go up given that most governments are currently inflating and debasing their currencies.

    • Steve I
      :

      Ilya,

      I agree that the physical asset is safest and that it is no point investing in miners if you dont spent time researching an inderstanding what to look for.

      However as a value investor, I see more value in a quality producer compared to bullion.

      • Steve I
        :

        Oh, I forgot to mention that bullion itself isn’t really an investment – it is a store of value and is money. Think of it as an alternative to cash.

      • darrin
        :

        Hi Ron

        Did some digging and calculated RMS intrinsic value of $2.05. Anyone else have a intrinsic value calculation for this stock?

      • Austin
        :

        Hi Darrin,

        I got intrinsic value very close to $2.00

        The worst part is it may take lots of hard work to study what projects they have which is close to production, and which is close to end life of mine.

        Having said that, this stock ticks a lot of boxes, low debt, high return of equity

        Anyone in this room has the experience/background in mining stocks? Mind sharing some insight about this stock?

        Regards,
        Austin

    • Jonesy
      :

      That would be my guess Ron. I started looking at it Ramelius when it was around $1.07 recently. By the time I decided it was a good investment it had already shot up to $1.40 (maybe due to someone increasing their position?!)

      • Ash Little
        :

        Hi Ron,

        I own and like RMS but my gut feel is they have something that they think is better.

        Time will tell

      • MatthewR
        :

        Jonesy

        RMS

        if you go back through the blogs looking for RMS, a number of bloggers still have it at a discount to IV, with IV rising at a good clip…

      • Jonesy
        :

        You’re right Matthew – I still added a small amount to my portfolio at that price – I just would have felt better had I got it earlier!

      • ron shamgar
        :

        another one that looks ok is saracen minerals SAR – but if i were to choose between the 2, than RMS it is!

      • Mick L.
        :

        G’day Roger, Could you please provide your IV for Medusa with the MQR just requested in the last post. I come up with a figure between $10-12 depending on the RRofR I use. Also, I am thinking maybe GDO could be the secret Montgomery gold stock. If this year’s forecast earnings are correct the ROE will be stellar and my conservative calculation of IV at 2011 year end is over $2.00. That’s an 80% MOS at the current share price. Thanks for a great blog. Regards, Mick.

  28. Steve I
    :

    Wow. Ross’s comments regarding inflation adjustment price of silver show him to be extremely I’ll-informed and goes to show how much legs this bull market has.

    I bet he also wouldn’t appreciate the fact that the way inflation is calculated today is also significantly different to how it was in the past.

    “does it pay dividends” – lol, I can’t believe that this sort of comment is still expressed in the continually deteriorating monetary environment. Why would a commodity pay dividends??? Seriously, it is not a business.

    I’d be interested to know what gold stock you hold Roger (when you have finished accumulating).

    I have MML, RMS and FML. Would be interested to know if I’m missing something but I haven’t found better yet. Due to my strongly held views, these account for a large proportion of my portfolio.

    • Greg Mc
      :

      Well, my interpretation was that Ross was gently prodding Roger (tongue in cheek) about the income ‘from his gold bars’ rather than asking a serious question.

      Wasn’t a bad bowler back in his day, either, old Ross. Very competitive chap with a ball in his hand.

      • Steve I
        :

        Hi Greg,

        I thought that might be the case at first, however his questioning was at a very rapid pace which to me usually shows some level of derision. I agree that he may have been asking the sorts of questions that would be asked by the lay person, however his comments/conclusion about inflation adjustment quickly removed any doubt for me.

        The tounge in cheek comment allows many to continue to think that gold has no value, which is completely false.

        The general (complete?) lack of understanding about sound money by most populations these days has allowed the situation to grow to the extremes that it has. Even today, gold is still seen as a speculative bubble as it is perceived to have little value as an asset, yet we shall soon see what the bubble will look like as gold inversely mirrors the bubble that is this fiat currentcy system.

      • Ash Little
        :

        LOL Steve,

        I thoght I was reading a blog by peter schiff.

        At said I can’t argue with you position

      • Steve I
        :

        Hey Ash,

        I do read Peter Schiff from time to time. I’ve seen him try to discuss his views on CNBC and it’s funny the amount of flack and interuptions that he receives. I admire his willingness to keep on trying.

      • Ash Little
        :

        Yep he certainly copes some flack but he was coping it back in 2006 why he exposed the US housing bubble as well. But he was right that time.

        Probably the best way to descibe him is Jim Roger on Steriods

      • Ron shamgar
        :

        Not sure he understands the concept of money printing as it’s impossible in us dollar terms for Dow to go to 1000 while they r printing so much money. Maybe in Aussie dollar terms…

      • Steve I
        :

        Ash,

        Interesting discussion, however I think he hasn’t taken into account the monetary environment and that debt is being inflated away. Therefore you dont have the depression environment in nominal terms, only in real terms. This is clearly not the same as 1932 – we are facing worldwide inflation and not deflation and the US has a real risk of hyperinflation.

      • Steve I
        :

        Oh and also his calls on the Dow are probably way off. It will probably end up flat-ish and down on real terms. Past gold ratios to look for are 1:1 or 1:2 Dow/gold ratio.

      • Ash Little
        :

        Yep I agree but good to read everyones points of view as well.

        Interesting whether you look at the arguements of Gordon or Faber/schiff they both have very different ideas but both camps are clearly gold bulls

      • Michael
        :

        I think there are alot of commentators who make some big calls to get some attention. There are plenty out there that are permanently pessimists about the economy and sharemarket. And using the principle of a broken clock is right twice a day, the pessimists are right occasionally. I don’t think there is anything to be gained from these people. Have you ever met a successful pessimist?

  29. Rici Rici
    :

    Roger would you mind writing something in more detail about your explaination of using futures to take a commodity position. I listened to the interview but just as you were about to discuss it, the interview ended.

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