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Dear Friend,
We will travel to Perth, Australia to
visit the iron ore mines of Fortescue Metals, now the #3 Australian
producer, and a number of Australian junior iron ore miners. You may reach
me by cell phone or email.
On May 25 and 26th we visited Augen Gold andTrelawney Mining on the "Swayze Trend," North American Nickel in Sudbury, and the uranium-rare earth prospects of Pele Mountain and Appia Energy in Elliott Lake, Ontario. Please contact me if you have an interest in a summary of any of these smaller firms. Appia Energy is privately held. A stagflationary climate has evolved in containerboard in 2011, unlike the outlook or acquisition assumptions on January 23, 2011 when Rock Tenn announced it would acquirer Smurfit-Stone. YTD consumer nondurable spending has fallen 1.5%, and YTD containerboard square footage grew just 0.8% to April. High gasoline prices, high food prices and persistent unemployment have squeezed many consumers. The expectation of tight fiber margins, and superior profit margins for virgin fiber based containerboard upon which Rock Tenn based its $6 billion acquisition appears optimistic to us in the wake of subsequent events. And the Rock Tenn shares have only kept on rising. We gave Smurfit-Stone credit for an 11% 2013 EBITDA margin, or almost twice its 2004 to 2010 containerboard segment average, including the $150 mm in synergies that Rock Tenn forecasts. Our 8% discount rate and 2% terminal growth rate spat out a $57 price target, which we believe is a reasonable.
Even though we raised our earnings
estimates significantly for AngloGold Ashanti due to higher gold prices, and
gold prices may rise even more, we maintained our $35 price target and
Underweight investment rating owing to its large investments in Congo,
rising costs and the deeper discount we believe its valuation deserves owing
to high risk nations and high risk projects involved.
While the gold bullion price appears to be in a robust bull market and rebounded today to close almost within 2% of a prior record close on April 29th at $1,556.00, generally gold shares appear to be in a "bear market." Investors flock to bullion ETFs, gold bars, gold coins, jewelry and related forms of gold. Many large gold mines have humiliated themselves in the eyes of investors with multi-billion dollar hedge losses, paying too much for acquisitions and poor cost controls. Many emerging gold mines grade at $100 per oz of reserves, or well below the $400 to $500 common to the five biggest gold miners. We favor a practice of buying a large package of upwards of two or three dozen publicly traded gold mines mostly in North America at near $100 per oz, or the 1981 to 2003 prior bear market gold mine valuation metric. These new companies face little production decline, huge reserve gain upsides in partly defined new deposits and often much takeover appeal. This week Claude Resources and Trelawney Mining led the good news. Our $1,200 long-term gold price estimate is robust for explorers or developers. Since April we have bought Premier Gold, Royal Gold, Virginia Mines, more Rainy River, Tahoe Resources, Paramount Gold, more Renaissance Gold, Entrée Gold, Magellan Minerals, Wits Gold, more Pilot Gold, Everton Resources, Majescor, Argonaut, Northern Superior and Torex Gold. We already own Greystar Resources, Galway Resources, Atna Resources, Klondex Mines and Focus Gold. Others we have sold in the past couple years, half too soon, include Fronteer Gold, Kirkland Lake, Osisko, Claude Resources, Midway Gold, Victoria Gold, U.S. Gold, South American Silver, Golden Minerals, Silver Standard and Platinum Group Metals. John C. Tumazos, CFA |
Copyright © 2008 John Tumazos Very Independent Research,
LLC
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