Gold fever back in town

Recent mergers have fuelled an explosion of passionate speculation; 100 potential target stocks are mentioned here.

JOHANNESBURG -

Last week's announced gold industry mergers - Eldorado with Sino Gold, and also Lake Shore Gold with West Timmins - have fired up fresh waves of heavy speculative investor portfolio flows into targeted gold stocks seen as most likely to feature as near term targets.

The interest is mainly speculative, given that the recent uptrend in global mining stocks, in place since early June, has been less focused on gold stocks than on a good number of listed recovery stock subsectors, led by copper miners, and followed by those specialising in nickel, iron ore, silver, platinum, aluminium, zinc, uranium, molybdenum, and even diamonds.

Gold bullion has held up better than other commodities, having broadly churned between around US$700 and US$1,000 an ounce since March 2008. This has left listed gold stocks with less relative upside leverage than other mining subsectors, and more so given bullion's trend of some months of trading towards the upper end of the range.

At the same time, valuations for gold stocks remain demonstrably high, on a relative basis, but this has long been a characteristic of listed gold miners, developers and explorers. With the apparent developing theme of merger and acquisition activity among listed gold stocks, the main game for speculators - and the odd investor - comes down to "who'll blink first?"

Using pricing available ahead of the opening of North American markets on Monday, some of the heavier bets have been going the way of San Gold, focused on gold exploration and mining in the Rice Lake Greenstone Belt in SE Manitoba, Canada; Australia's Citadel Resource, focused on gold and base metals interests in the Arabian shield; Romarco, with its Haile Gold Mine (South Carolina) in the bankable feasibility stage; Australia's Conquest Mining, with its Silver Hill project in North Queensland, and Australia's Kingsgate, not least following positive surprises in its recent full year results, such as recent US$228/oz cash costs, a significant turnaround in the company's financial metrics, and a likely upgrade in its resources.

Among other top running gold stocks around the world can be counted Glencar Mining, under friendly bid from Tier I gold miner Gold Fields, and highlighting the growing activity in and around listed stocks active in Africa. Red Back, another highly in-demand gold stock, was recently brushed aside in its bid for Moto Goldmines by a joint bid unfurled by Randgold Resources and leading Tier I name AngloGold Ashanti.

Further top runners include Gold Resource, as it moves further toward production at its flagship property, its El Aguila Project, in Mexico; Western Copper, which for months has looked to be one of the most attractive copper-gold names (the Casino project holds reserves of 4.3bn pounds of copper, 7m ounces of gold, and 475m pounds of molybdenum, and Iamgold, which ranks as one of the world's few genuinely low cost gold miners.

Yet further names include Colossus Minerals, which continues to do a rather brilliant job of marketing the reworking of the Serra Pelada (Brazil) deposit, hosting gold, platinum, and palladium; Golden Star, another African gold miner, and also Ampella Mining, with its compelling Batie West gold strike in Burkina Faso; Troy Resources, a junior gold producer with operations at Sandstone in Western Australia and the Andorinhas Gold project in Para State, Brazil, and Kirkland Lake, active in Ontario.

Other top runners include a good number of the usual suspects, such as Tanami Gold, Jaguar, Osisko, Fronteer, Alamos, and Andean, a perennial favourite with a number of professional analysts. There is also an apparent growing interest in smaller gold stocks with Tier I partners, as seen in the case of Alkane Resources, a diversified explorer with interests that include the Orange District project in Australia, where Tier I digger Newmont has earned a majority interest. Sometimes partnerships can prove testy, as seen in the recent case of Conquest Mining rejecting overtures from Tier I gold digger Gold Fields.

Kinross continues to rank as the world's most in-demand Tier I gold stock, a position it has held for some months, and a position it swaps fairly regularly with AngloGold Ashanti; Goldcorp is also running hard, followed by Newmont.

Gold stocks that have attracted strong, if not overwhelming interest, can sometimes fall off the radar screen. Among more than a dozen stocks that have risen by more than 1,000% in price, from 12-month lows, can be counted Ventana Gold, Frontier Mining, Sandfire Resources, La Mancha Resources, Norseman Gold, Colombia Goldfields, East Asia Minerals, West Timmins, New Dawn, Century Mining, Australian Solomons, VG Gold, Pelangio, Romarco, Underworld Resources, and PMI Gold.

Most of these stocks have been subject to various levels of profit-taking; those holding out with continued investor interest can be named as VG Gold and Romarco. At the other end of the scale, New Dawn is more than 50% off its highs.

The big gainers are led unquestionably by Ventana Gold, listed during the darkest closing days of 2008. While the stock has (for now) surrendered nearly a quarter of its peak value, it still sits currently with a stock price more than 12,000% above its lows. Ventana currently sports a market value of US$369m, based on its two Colombian projects, La Bodega (including Coloro and El Cuatro), and California-Vetas; gold mineralisation was first discovered at La Bodega in 2006.

The two projects lie immediately adjacent to the Angostura project, held by Greystar, where a resource of 15.02m ounces of gold has long been outlined. It seems, however, that investors and speculators lost excitement over that story; Greystar's stock price is nearly 40% below its highs, with a market value of US$189m, substantially less than the applicable number for Ventana.

Last week Greystar announced that "exploratory drilling three kilometers south of its multi-million ounce Angostura gold-silver resource in northeastern Colombia continues to intersect near surface, gold-bearing oxide mineralization". But for now investors appear to continue favouring the idea that Vancouver-based mining entrepreneur Ross Beaty's Lumina Capital accumulated at least 16.9% of the issued and outstanding common shares of Ventana.

Ventana has this year published a series of high grade drill intercepts from the La Mascota mineralized zone on its flagship La Bodega gold property in Colombia. At least one analyst has mentioned a price target of C$10.00 a share for Ventana (against current trades just below C$4.85), not least on the back of a projected 550,000 ounces of gold production a year at total cash costs of just US$295 an ounce.

While Ventana has many sunrises to go before completing its drilling programme, Colombia Goldfields, a stock with a market value of a mere US$21m, has, like Greystar, been sharply sold off after spells of heavy speculative interest in the stock.