Avocet Mining Share Discussion Threads

[kojak78] 14/2/2006 17:29

Well folks, we have to differentiate between a company and its shares. There are excellent companies like Goldcorp and there are not so excellent companies like AVM (if only because of the hedges). No one will argue that Goldcorp is the better company. But we as investors don't choose great companies, we invest. Investing is about price. It's better to buy a not so excellent company at a huge discount than an excellent company like Goldcorp at a premium. Buying AVM is like buying that TV-set with a scratch on the backside of the case at a 70% discount instead of that 50% higher than average priced "premium" brand where you pay extra for the name.

[holdontight] 14/2/2006 17:28

No, not the point I am making. Been here 3 years, so take me as you will, I could not care less, but there are better gold buys out there than AVM. The hedge move was not in shareholder interest if you believe gold headed to $1000+, which I do.

[robbi123] 14/2/2006 17:27

off topic - corrientas, where has RAVEN's thread gone??

[corrientes] 14/2/2006 17:22

One bad day and all the gripes come out. One good day and everything is wonderful. Typical.

[holdontight] 14/2/2006 17:18

57%.....AVM is still a buy, most certainly. But no longer a marriage proposal!

[dixi] 14/2/2006 17:13

All production above 10,000 ounces per month, which is currently 43% of estimated annual production, will be sold at spot prices. This, together with the increased production over the next few years, gives the Company upside to a
rising gold market.

[dixi] 14/2/2006 17:11

I was under the impression that not all prodcution by AVM is hedged?

[dogberry202000] 14/2/2006 17:04

I wouldn't bother with hedgers like this one. The upside is VERY limited with a company like this. They'll be passed out like tortoises by hare-like none hedgers on a sustained hike in gold prices.

[kojak78] 14/2/2006 17:02

hedging is a minor issue for AVM. 450 floor price, 700 capped. Translates into ca. 550 average. 360,000 oz. Yes, at $650 gold price AVM will have a hedge loss of $36m. $36m and not $200m like Resolute for instance.

Hedging works like a reverse lever on the gold price. Bank debt works like a lever, to the upside and to the downside. High cash costs are a lever, too. More upside in case of higher gold prices, more downside in case of lower gold prices. Undervaluation works like a lever. It works to the upside regardless of gold price, that's why leverage by undervaluation is the single most important lever for gold miners. No one can equal AVM in the gold stock world, except perhaps Minefinders and they still have to prove they can build and mine.

[holdontight] 14/2/2006 16:45

Yes, agree with you. But the have still CAPPED 50% of the production. Imagine a spike in price of gold to $1000 within 18 months and the impact on AVM. Now imagine the impact of NO HEDGE. AVM still has value which is why I still hold, but they need to decide whether they are gold miners or bankers! There are plenty of companies with no hedge and increasing production and exploration potential, that will now return more shareholder value than AVM next few years. IMO.

[trader horne] 14/2/2006 16:43

Reefseeker, thanks for damn fine link, I can see the gut-wrenching selloffs against the trend happening in all my bigger commodities stocks - BLT, BUR, &c. It's top-up time for all of them.

[brad1] 14/2/2006 16:15

definetely time to top up. i can see this as merely a temporary blip - probably a tactic to take away weak holders. Management would not have taken recent options unless they had a clear view of where they want to go and it seems to me they want to bdo it quicker. Any good news is likely to test recent high and then on towards all time high (eventually) - who knows after that but I am definetely not selling any in fact quite the opposite. I actually quite like like this fairly quick fall cause quite often you get a stronger reaction to surge this share where a lot of us regular followers know it is heading.

[holdontight] 14/2/2006 13:17

Well Kojak, I have off loaded ca 80% of my holdings in AVM now. Initially, I did not like the new hedge position; then I thought about it a while and decided it was prudent......after further thought, I have changed my view again....the upside is far more limited now and I want a gold play with ZERO hedge. i still hold some, and more than enough at that, but my money is elsehwere too......let you know where wehn I have finished buying.

[kojak78] 14/2/2006 13:07

BTW, I did sell a few thousand Resolute shares yesterday just in case. The hedging (1 mio ozs, call options) didn't worry me when I bought the shares. but now that AVM is hedged slightly I don't feel so sure about Resolute any more. If AVM should get minor hedging problems at gold price 650 I want my other gold stocks to perform spectacular to offset that issue. I think Resolute could really go broke, not at 700 but perhaps at higher gold prices.

What do you think about Resolute going broke?

They assure no margin calls apply, but they sold call options. I remember the discussions and despair at the yahoo Ashanti board back in 1999 very well..

Let's assume they don't go broke.. let's assume the gold price climbs to $650 in October. Let's assume 1 mio hedged ozs at $450.

Current valuation:
$313 mio (market cap + debt + hedge losses)

October valuation:
$423 mio without share price increase.

Let's assume that gold stocks rise 50-70% until October, the tide lifts all boats and so no reratings occuring.

Resolute enterprise value = $443 mio = $158/oz

At that point AVM will probably trade at 200p or ca. $200/oz.

AVM figures are exclusive of 2 mio ozs Taror/Chore while the 2.8 mio ozs reserves of Resolute are inclusive of 1.8 mio ozs at Syama. BHP had big problems with Syama even in the mid 90s. Capital costs are 82 mio, Resolute will have to finance the amount and with above $220 mio in debt and hedge losses bank financing just doesn't look possible.

I guess the capital base will be inflated to ca. 310 mio shares.

A further gold price rise to $750 in early 2007 should bring valuations per reserve oz to ca. $300 (very conservative, could as well be $400 or $500). Avocet is easy, 300p (if still the overlooked and unknown gold stock as today).

Resolute enterprise value $840 mio is $520 market cap or A$2.28/share. Performance = 90% vs. 140% even without the Taror/Chore "afterburner". If feasibility is positive and capital costs can be financed by ongoing cash flow AVM could very well rise another 240% (380% total).

Then we have Minefinders, $100 mio bank financing in place, no hedges, 40 mio shares. 53 mio ozs silver recovered and 1.44 mio ozs gold recovered, total mining costs perhaps $450 mio. $750 gold means ca. $14 silver. Minefinders will be a silver miner with $12 negative cash costs per oz of silver. They will make $26 on 53 mio ozs of silver, enterprise value should be in the $1200m to $1300m area. That's above $30 per share, more than 370% share price gain.

I guess I will invest my funds in Minefinders. They are the better AVM companion. Silver, no hedged, listed on North American exchanges, probably better performance than Resolute. The most interesting thing is that Minefinders has the lowest leverage to the gold/silver price. And yet MFN will perform better than most highly leveraged gold plays because MFN have the additional lever of undervaluation just as Avocet.

[hectorp] 14/2/2006 11:55

Your stock gents is still well inside the rising trendline so no worries .
I'll be buying a few K's when this all settles, so I'm greatful for the gold and silver hickup.
Short gold at the moment.

[reefseeker] 14/2/2006 11:04

10k top-up this morning at 126p. The comments in the link below from a US trader summarises my thoughts on PM and seems to mirrir kojak's views too.

www.sortweb.com/cwsimages/Miscfiles/2444_The_Big_Dipper_2-09-2006.pdf

[yikyak] 14/2/2006 10:53

Retail investors need to be flushed out before the bigger players take a position and jam it back up again, retail pm investors answering to the institutional Pavlovian bell.

kojak, i'm with you - buy and hold em.

[andy] 14/2/2006 10:33

kojak,

The price is now 10p lower than my stop, so I will have a good re-entry point when the fall stops.

[kojak78] 14/2/2006 10:25

This was a modest 7.5% one day drop, very common to gold stocks, why sell? I lost in the 5 digits today, who cares. You can't make big profits and avoid large losses, the only thing that counts is that you have more profits than losses in the end.

Could be a bottom but then perhaps not. Technical levels are oversold, RSI moves from neutral to slightly oversold. But remember, as well as in bull runs stocks can run much higher with already overbought technicals they can drop way lower at already oversold technical levels. The largest rises occur at overbought technicals and the largest declines at oversold technicals.

I think current levels are a reasonable entry point. Could go lower, but in the end superior fundamentals will move AVM way higher. At least 180 to 190 in autumn, and that's only if AVM doesn't outperform the HUI.

[pomp circumstance] 14/2/2006 10:22

nice chance to top up cheap!

[andy] 14/2/2006 10:16

TT,

Thanks goodness for stops!

For once I set a proper stop, and avoided a loss here, will be back later.

[topsy turvy] 14/2/2006 10:00

Hope we are just about at the bottom Kojak. This morning's decline is fairly savage!

[kojak78] 13/2/2006 16:21

P.S.
AVM stochastics bombed out, williams %r dito, rsi neutral again. From a technical perspective the (AVM) bottom can be in any day now and we can go much much higher until technicals are overbought again.

[kojak78] 13/2/2006 16:20

The disturbing fact is that, yes, gold stocks did decline. But only to mid January levels. Avocet was at 145 at the same time. Now 132. Once again irrational market behaviour. I'm looking for a still more irrational 125p bottom.

I guess a rise is now due for the gold stocks with a second decline slightly below current levels at the early March time frame. Maximum downside are additional -20% in a crash like scenario that could unfold only this week.