Troy Resources, Resolute Mining
Gold's Olympic potential
My wife gushed when celebrity physicist and ex-D:Ream band member Brian Cox said on top of a mountain somewhere in South America that the total amount of gold discovered in human history was about two Olympic-sized swimming pools' worth. I didn't gush, exactly, but thought I had better look into it.

And with all the nervousness out there, it appears this fact is subconsciously lodged in many people's minds. That, and the gold price hitting record highs outside of the India's “Diwali” festival of lights. It is now well trading above US$1600 an ounce.

The funny thing is, although gold has been on an upward trajectory for the past nine years which corresponds to the bear market in the US dollar, as equity markets have slid, gold stocks have slid further. This is contrasted with the rise and rise of the gold-linked exchange traded fund (ETF).

But this seems to be changing. In the past month or so the gold price has climbed about 7.5 per cent, while the S&P/ASX All Ord Gold Index has gone up almost 13 per cent and the FTSE Gold Mines Index has risen about 11.5 per cent. Meanwhile, an ASX traded gold ETF (ASX: GOLD) has climbed just over 5.5 per cent over the same period.

So, right now, gold bugs are out and about, shouting from the tops of mountains, or at least at gold conferences in Sydney's CBD, which is where your scribe found himself the other day.

These companies, which included both junior explorers and bigger producers, were promoted by Warwick Grigor and his team at BGF Equities, who, not surprisingly, are convinced that gold is the place to be.

Grigor himself told me that aside from his holdings in gold companies he had bought some gold coins the other day for a few percent commission. This, he said, was a far better way of profiting from the gold price than buying an ETF.

“ETFs in gold merely give you a certificate to say that it's backed by gold somewhere … but you've got counterparty risk, and it's not a clearly regulated environment,” he said.

I didn't mention Bre-X Minerals – a Canadian gold miner which had “discoveries” in Busang Indonesia. It rose to a market capitalisation of over $C6 billion ($A5.7 billion), but it collapsed in 1997 after the gold samples were found to be a fraud.

Troy's South American Oro

There is no doubt that in the current environment there is momentum for gold and indeed for gold companies.

One of the companies that impressed with arguably the greatest chance to make punters' the type of profits that makes sweating it out in a conference worthwhile was Troy Resources.

At $4.07, its shares have spiked over 26 per cent over the past month. Its market cap now sits at $358 million.

This company has a couple of small mines, one of which is in Brazil, but the main game is its Casposo Mine in Argentina.

It has been trying to ramp production up over the past six months but has had problems due to unseasonably cold conditions with temperatures in the region of minus 18 degrees centigrade at night.

Now that it is overcoming these problems, investors are starting to take interest in its potential.

The gold discoveries on its books right now have grades of about 9 grams per tonne. And because of its silver discoveries, the cost of mining could actually be negative – meaning the sale of its silver will exceed the mining costs.

The opportunity for Troy (ASX: TRY) lies in the “down plunge” extension of the ore body, where recent drilling has returned intersections as high as 109 grams a tonne, with most being between 10 and 15 grams a tonne.

Investec is saying the company can produce a 1-ounce-a-tonne of gold equivalent from parts of this mine. If this is the case and it spends, say, $300 digging up a tonne of dirt and putting it through its mill, it would produce about $1300 of gold for each tonne. This is a significant improvement on its current yield of about $380 a tonne.

Troy is valued at $5.20 by Investec, which is looking more and more achievable each day.

Resolute's opportunity

Another company that has been overcoming production problems is Resolute Mining, which has operations in Mali, West Africa.

At $1.37 a share its market cap is $640 million, which is well above what this column would normally cover – but there is a definite opportunity for investors, in the opinion of this scribe.

Resolute has three mines but the key is its Syama mine which is producing 80,000 ounces of gold a year and has been affected by mine shutdowns. The company should be ramping up production towards 250,000 ounces a year from this mine over the next six months.

For the 2012 fiscal year, Resolute should produce in the region of 410,000 ounces at a cost of about $730 an ounce. Of course there's tax and royalties on this, but it should be put in perspective.

Its market cap is less than half that of Perseus Mining's (ASX: PRU) of $1.3 billion, and Perseus isn't in production yet! And when Perseus is in production, it will be initially producing about 220,000 ounces.

Such anomalies are what gold investors look for.


Start Your 30 day free trial today

Do you want to get access to our weekly reports?
Leave your details and get an instant access.

As Seen In