Today's Fairfax column shows that the gold stocks I've covered this year have returned 33 per cent on average. One tip covered in detail in Under the Report: Small Caps was Red 5. It's still at the level where we covered it in Issue 1 on 22 September. But from talking to some instos and the company itself there should be some good news coming up soon. This stock is well positioned for a run. Watch this Space.
Also, interesting news about another KFC Franchisee coming onto Collins Foods register. This augurs well for things to come, I believe. When insiders take a stake, it's a good sign. Plus, there is no doubt that the two biggest franchisees combining forces could lead to a listing shorter than a Kardashian marriage.
Happy reading and toot toot.
November 18, 2011 - 11:43AM
Fossicking for gold
As the year draws to a close, it's worth noting some of the hits and misses of this column.
The big hits, as it turns out, include many of the gold stocks.
All but one or two of the gold stocks this column has written favourably on over the past eight or so months have done well, some more than doubling.
These include Norton Gold Fields (ASX code NGF), Red Five (RED), Northern Star (NST), Papillon Resources (PIR), Doray Minerals (DRM), Troy Resources (TRY) and Resolute Mining (RSG).
There are company specific reasons for each of the moves, of course.
Doray, whose stock has doubled since we covered it, is now a takeover target; while Northern Star has been delivering strong production and drill results (see its announcement this week); Papillon's exploration results are more than promising; Resolute has started producing cash from its key Syama mine in Mali; and Troy's exploration is looking more promising by the day.
But for all these companies there has been a big reversal of fortune, and it's only been in the past month. This time last month many of their shares were under water - part of the reason why this column was tempted to take a closer look.
The gold price gives us a clue as to the turnaround. After reaching an all-time high of just over US$1920 an ounce in early September it then proceeded to fall 20 per cent over the next month.
The yellow metal's now bounced back part of the way and at about $US1765 an ounce, remains about under 9 per cent below its peak.
The gold price's recovery has helped, but it doesn't necessarily rule out further appeal for these stocks.
In the past year, gold has climbed about 26 per cent, while an industry benchmark for gold companies, the FTSE Gold Mines Index Series, has climbed a measly 3 per cent, although it has been very volatile.
What investors need to take from this is that although gold stocks have been appreciating, their valuations still lag the gold price. Equities have underperformed bullion by about 23 per cent. Normally you buy gold equities for exposure to the gold price, so this is very unusual.
With all this uncertainty in global markets, investors clearly think the gold price will remain high - especially as they seek shelter from Europe - which favours gold miners. So some figure this discount will reduce.
In October, fellow gold miner Ramelius Resources (RMS) announced a 6.6 per cent stake in Doray, and this got quite a few punters in the sector talking, and buying.
The fit seems to make sense.
Ramelius made a lot of money with a small high-grade deposit in Western Australia, called Wattle Dam.
So there is speculation that Ramelius is looking to replicate its success and Doray's high grade Andy Well project, also in WA. This mine is still an exploration play, but some holes have revealed that it could be very high grade, with its resource being 25 grams a tonne (many mines aren't even 3 grams a tonne).
This month Ramelius raised $55 million in stock, which adds to their existing cash balance of $90 million. So it's sitting on a cash pot of $145 million. Watch this space.
Collins Foods (CKF) is one company that has definitely disappointed. The KFC and Sizzler franchisee delivered a profit downgrade just three months after listing and raising in excess of $200 million, $60 million of which went to its private equity vendor Pacific Equity Partners.
At $1.23 its shares are half the listing price of $2.50 and below its $2 price when we first covered it.
On its register are many of the biggest Aussie small cap fund managers: MLC, AMP, BT, Aviva, Pengana and Colonial.
When this column wrote two Fridays ago about their pain, one fundie said that maybe the falls represented a buying opportunity: “Buy the fear, buy the fear,” he kept repeating.
Well one institution has, but it wasn't a fund manager.
Yesterday an ASX release announced that the Copulos Group, “a private investment company with significant interests in the Australian KFC fast food industry” had purchased 5.4 per cent of Collins Foods. It was signed by Stephen Copulos.
The last time the Copulos name was associated with KFC was in March 2009. Stephen and his father Peter were directors of QSR, the second-biggest franchisee of KFC in Australia (Collins Foods is the biggest).
The KFC outlets in Miranda and West Hurstville, over which QSR held the franchise, were prosecuted and fined more than $73,000 by food authorities for filthy premises and pest infestation, after a 10-month investigation.
We are confident they have cleaned up their act.
Radar can't help but notice that only one day prior to Collins Foods' profit downgrade on November 2, there was a rate cut, and it wouldn't be surprising if more came along.
This should be good news for KFC sales. We would also note that looking through the details of the downgrade, management seemed to panic. It extrapolated the poor sales figures of September and October into its full-year results. And summer hasn't even hit! KFC is a “must have” apparently for cricket fans and schoolies.
Possibly the Copulos family is seeing in their own stores that things aren't as bad as the Collins Foods' downgrade suggested. Finger lickin' food for thought.