Avocet Mining Share Discussion Threads

[captain swing] 02/2/2006 07:28

3rd quarter production...

[kojak78] 02/2/2006 06:11

And the best thing is that Avocet is not just an undervalued producer with such and such $/oz but as well has a successful business model. Compare Avocet and Yamana. Avocet did find Penjom itself. Management solved the problem of carbonaceous ore. Avocet has a much higher probability that the company will go on once old mines are depleted. Yamana has bought existing mining assets cheap. Track record looks way more uncertain. Of course the raw valuations based on $/reserve oz, $/annual produced oz are higher, too.

The one thing that is missing from Avocet's business model is overvalued stock. The full potential is
4 years Penjom + 2 years undergound Penjom = 720,000 oz rec. = 800,000 oz reserves
1 mio oz North Lanut (Riska + Bakan) * 80% = 800,000 oz
Jilau+Taror+Chore 3 mio oz * 75% = 2.25 mio oz
20 mio oz Russian categories = 10 mio oz jorc resources = 3 mio oz potential reserves * 75% = 2.25 mio oz
all in all 6.1 mio oz with 120000 + 100000 + 70000 + 70000(Bakan) + 130000 (Taror+Chore) + 150000 (new mines in Tajikistan) = 120000 + 140000*80% + 380000*75% = 517000 oz per annum at cash costs of perhaps $250, industry average or slightly lower.

Average valuation are $200 to $240 per oz, so the price at which Avocet becomes overvalued once all organic growth opportunities are factored in is ca. 7.50 with a lot of upside (Desert Sun costs now above $400/oz).

At this price AVM can take over other miners that are valued at the market average. Of course takeovers of undervalued producers are possible way sooner. But at current prices no takeover can take place as the AVM stock is just too cheap and would dilute organic growth opportunities.

If Avocet want's to become a major (say 2 mio oz) it will have to do way better in promoting its stock and in hedging. Better exploration team would be needed, too. Exploration is very good (IMO one of the best), but just not at the same level as world class miners like Normandy did it with grass roots etc. It's just not feasible for AVM at this time and this small size. The last issue is hedging. If done right hedging can be a company maker. The most important issues are possible mid-term gold price corrections of several hundred US$ in 1 or 2 years (of course from levels way higher than now) and the ultimate top. I think gold will top at 2000 to 3000, but that is in todays dollar. No one knows how high inflation will run and demographic problems mean that the Western World just has to inflate (the other choice would be to increase taxes for the working population to 80 to 90%). Inflated Gold prices of $8000 or $10000 are entirely possible, but would be in real-term slightly lower than the $2000-3000 level in todays US$. Continued inflation could mean there isn't a chance for hedging for years to come! So the keys to succesful hedging at the ultimate bull market top are timing and the choice of hedging currency. I would like to see Avocet become a major producer of 1 or 2 mio oz, but that will be out of my investment time horizon. Management has the ability, though.

[holdontight] 02/2/2006 00:41

A quick recap, after a bottle of red I might add!

On 06/07 production of 250k ozs
Ave gold price of $600 (we will exceed $600 this month, imo)
Costs at $270/oz

250k x (600-270) = $82.5 mill profit
less 15k o/heads (incl exploration)
$67.5 million = $39.7 mill
/ 105 mill shares = 38p EPS pre tax
and 27p EPS post tax

Forward P/E is therefore ca 5x

We continue to be ENORMOUSLY undervalued.....fair value today would be ca £4.50, which I think is similar to what Kojak said earlier......

The company are not rewarding their shareholders sufficiently, IMO.

[holdontight] 01/2/2006 23:33

HUI to 440?

[trader horne] 01/2/2006 12:35

same epic code but on australian exchange

[zaky] 01/2/2006 09:58

What's this Anvil Mining hogging the AVM bb??

[kojak78] 31/1/2006 18:56

HUI made a huge rise at the first trading day of the year, then consolidated and then rose again 15%. AVM rose ca. 40% while the HUI was consolidating, outperformance. Now the HUI is up 15%, AVM -3% and is oversold on the technical levels (Williams %r, slow stochastics).

I said I would buy more when technicals were oversold again. 142.5 and 139.5, only 4000 so far.. downside IMO to the 125p range if the XAU/HUI start correcting now. Let's see the market movement after the FED decision.

[corrientes] 31/1/2006 18:44

Concern about quarterly ? Hope not.

[holdontight] 31/1/2006 18:11

Time for AVM to start moving north again. XAU and HUI both on fire these past few days and AVM has not participated.

[chipperfrd] 31/1/2006 13:23

kojak - thanks for that. Minefinders is already on my short-list so I appreciate your view.
Chip

[trader horne] 31/1/2006 12:54

Ha! thought I was going crazy - now I understand the negative silver production cost!

[kojak78] 31/1/2006 04:01

I think Avocet has lost its crown as the best precious metal investment. It still is the best gold producer IMHO. But for the first time I've found a stock that is lower valued than Avocet. Well, it depends on assumptions, timing etc. Overall, short-term and long-term, both offer the same fundamental potential. But the stock-market is not just about fundamentals.

The stock is Minefinders. Quick facts: 100 mio debt, 50 mio cash when fully diluted, 2 mio ozs gold reserves, 105 mio ozs silver reserves, 1.44 mio ozs gold recovered, 53 mio ozs silver recovered, $405 mio total cash costs, potential for reserve expansion (perhaps 30%?).

Assumptions: $650 gold price, total scheduled production considered
Avocet: (550-250)*1.8 mio = $540 mio = 275p/sh = +100%
Avocet + Taror/Chore + minority interest considered: (550-250)*3.1 = $930 mio = 475p/sh = +240%
Avocet +T/C+Bakan+South Sulawesi+Idenburg+Dynasty+Russian "resources": ???

Minefinders:
Silver = $11.20/oz
1.44*$650+53*$11.20-$405mio-$50mio = $1075 mio = $26.87/sh = +265%

You can see that Avocet is probably still the better investment considering the better expansion possibilities, better exploration potential etc. (IMHO Avocet will generate more than 5 mio ozs of reserves out of its assets). Without Taror/Chore Avocet is not as good as Minefinders!! Although we should consider that Minefinders isn't producing yet. Not a proven producer, management certainly not as good as AVM's.

Here comes the trick. Recovered production silver:gold ratio is 37. Reserves silver:gold ratio is 52. The gold silver price ratio is 58. Producers with 60% copper/40% gold (Yamana's Chapada..) market themselves as gold producers. So it is very likely that Minefinders (and perhaps Gammon Lake) will be considered as silver producers.

Ever wondered why silver producers are so expensive? Well, they are *not* priced on the silver price, they are priced on something like a "fair" gold:silver ratio. Something like 30 or 25. So just take the gold price and divide it by 25 and you have your silver estimate price at which those silver stock valuations make sense.

E.g.
Silver Wheaton ($9.70-$3.90)*70 mio = $400 mio = 1/3 * market cap
Gold price $570:27 = $21 silver price at "fair" silver ratio
($21-$3.90)*70 mio = $1197 mio = ca. market cap

Now for Minefinders at current prices.
1.44 mio ozs gold at $570 are $820 mio. After total mining cash costs $415 remain as gold "byproduct" credit. Divided by 53 mio ozs silver that means negative cash costs of $7.80/oz. Now we assume the "fair" silver price, again $21.
($21-(-$7.80))*53 mio = $1526 mio = $38/sh = +420%

Nearly as cheap as Avocet on normal fundamentals and +400% in case of rerating as a silver producer are very compelling reasons to invest. This is a very nice addition to every AVM portfolio, although I don't like silver stocks and Mexico has political risks.

The last deals that came close to Avocet's potential were Yamana, Desert Sun, Gammon Lake and Agnico Eagle. Yet Avocet was still slightly cheaper so I decided against switching.. all of them have performed way better than Avocet because they are now much higher rated (Desert Sun +300%).

[kojak78] 30/1/2006 16:56

Then of course Dynasty has to sell out to Avocet if they want to get their Hatu project developed!

[saucepan] 30/1/2006 16:39

OK understood; thanks. I thought at first you had got wind of some further stake building. (Which would not surprise me).

Edit: the downside of course, is if they do now want to buy more, it will cost them more.

[kojak78] 30/1/2006 16:32

Avocet's announcement.. they said they owned 21.4% of Dynasty. 2.75 mio units (1 sh + 1 warrant at .30) purchased. From the purchase price and the persentage stake you can calculate that they bought all in all 12 mio shares + 2.75 mio warrants for US$1.9 mio. Now do the math with the current price (C$.48).. US$5.3 mio or so. Very nice timing!

Perhaps we should disinvest out of Avocet and just buy the companies that are associated with them. Primary Metals.. Dynasty..

[saucepan] 30/1/2006 16:24

Hi Kojak: where are you getting the information? Any links, please?

Some very big trades today: looks to me as though the price was dropped to facilitate them.

[holdontight] 30/1/2006 16:10

Why is it up....pending purchase by AVM?

[kojak78] 30/1/2006 15:22

Avocet's Dynasty Gold stake is up 200% or US$3.5 mio already..

[yikyak] 29/1/2006 14:12

Talking about silvers, First Majestic Resources is one I hold although it's been a bit of a laggard over the last few months compared to many. Depends on your viewpoint but I consider that not such a bad thing as it's built a very strong base to move forward. 11m oz of unhedged production in 2008, cashed up and still a small market cap compared with many.....C$70m

Chart TA followed by video presentation (PRESS PLAY):



http://media.richmondclub.com/Luncheon/FirstMajJan182006_files/Default.htm

In respect of AVM, still way undervalued and i'm guessing always will be until such time we get a rush of investors seeking metal exposure for the first time. At that point it will become overvalued very quickly but that won't stop it from continuing it's rise as so few decent mining plays on AIM exist.

[kojak78] 28/1/2006 14:38

Yes, I would like that, too. I bought more than half of my position at 13.5p, but that doesn't matter as I could have sold already. My decision to hold at 143p is the same decision as buying at 143p. No difference.

One has to realize that we are in a relative precious metals bubble where some stocks show just too high, unrealistic relative valuations to the average precious metal stocks. If you decide to buy SLW now you will make several hundred percent, but you will still be wrong as your investment will gain less than physical gold and way less than silver (not considering leverage by resource to reserve conversion at higher prices, then again you can leverage physical silver much more because of less volatility than silver stocks). The guys with explorers that hope to find gold won't profit one single cent if such an explorer doesn't find gold.

Once again people make the same mistake. They think the stock market is driven by earnings. They think gold stocks are driven by earnings. Yet in reality companies make earnings, not stocks. Stocks and the underlying companies are connected by the valuation ratios, if you invest at too high valuation ratios you won't make a profit even if average earnings increase by 6% per annum!