Buy, Sell or Hold Aura Minerals (ORA:TSX)

Canaccord Adams mining analyst, Steven Butler initiates coverage on Aura Minerals (ORA:TSX)



Company Profile

Aura Minerals is a Canadian exploration company focused on the acquisition and development of mineral deposits in Brazil and South America with an emphasis on developing the polymetallic Arapiraca Project in north-eastern Brazil. The Arapiraca Project which was originally explored in the 1980's and 1990's for copper and gold, also contains magnetite (up to 50%) and nickel which have not yet been evaluated. The Company plans to evaluate the Arapiraca Project for copper, gold, nickel and iron ore, all of which can be readily extracted. The nearby infrastructure is excellent with ready access to electricity, water and shipping ports. Aura Minerals' other projects are the Cumaru, the Inaja Greenstone Belt and the North Carajas claims in the Carajas Metallogenic Province of north central Brazil.

Event

On November 26th 2007, Canaccord Adams mining analyst, Steven Butler initiates coverage on Aura Minerals with a Speculative BUY rating and a C$2.00 price target.

Highlights From The Event

Aura's Arapiraca project hosts at least 2 known polymetallic copper-iron-nickel-gold deposits in Alagoas State, northeast Brazil. Butler expects immediate upside potential in the form of increases in tonnage at Caboclo, "blue sky potential associated with more than 38 other regional targets" and the release of drill results from the Serrote da Laje deposit (with the de-bottlenecking of the assay backlog in Brazil). The project could come into production as early as the second half of 2011 and yield average annual production of 200 million pounds copper, 2.5 million tonnes of iron, 13.4 million pounds of nickel and 50,000 ounces of gold over the first three years of the operation.

Upcoming catalysts include an updated 43-101 Resource estimate due in January 2008, pre-feasibility study scheduled for March/April 2008 and a feasibility study in December 2008.

The project is situated close to rail, road, power and port facilities and "should support a premium valuation" (writes Butler) due to its proximity to infrastructure.

Aura is led by CEO Patrick Downey (former CEO of Viceroy) and supported by a number of additional key technical personnel that Butler feels will "ensure successful progress through feasibility, development and production." Management also includes Chairman - Victor Bradley, who is a founder of both Aura Minerals and Yamana Gold, Director - Peter Marrone, who is the Chairman and CEO of Yamana Gold, Director - Patrick Mars, who was formerly president of Bunting Warburg (Toronto) and Managing Director of National Bank Financial (London) and Director - William Murray, who is currently President and CEO of Polymet Mining.

Risks

Butler writes that further metallurgical work needs to be done (even though such work was previously performed by CVRD on the property) to determine "crush/grind sizes and resultant metallurgical recoveries for all intended products (copper, iron, nickel and gold)." Furthermore, the company has to "define marketing/sales agreements for its concentrate products, particularly for iron and nickel."

Target Price and Valuation

Shares of Aura Minerals appear cheap, trading at around 0.6x its estimated NAV (8%) of $2.18 (according to Butler) and less than than 2 times Butler’s CFPS estimate ($0.62) over the first three full years of production (2012-2014).

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Buy, Sell or Hold Australian Solomons Gold (SGA:TSX)

Haywood Securities mining analyst Andrew Kaip commenting on drill results released by Australian Solomons Gold (SGA:TSX)

Company Profile

Australian Solomons Gold Limited is a mining and exploration company with a specific focus on the re-establishment of the Gold Ridge Operation in the Solomons. The mine operated from August 1998 to June 2000 and produced approximately 210,000 ounces gold during this period. Australian Solomons acquired the project in May 2005 and has completed a Feasibility Study to redevelop the Gold Ridge Project which is expected to commence operations by Q2 of 2009. They are scheduled to reach commercial production rate of 150,000 ounces of gold per annum commencing June 2009.

Event

On November 29th 2007, Australian Solomons Gold announced new drilling results from its 100% owned Gold Ridge mine located in the Solomon Islands.

Takeaways From The Event

Australian Solomons Gold announced the results of drilling work being done at
on the Charivunga Mineralized Zone (CMZ), which is located between the Kupers and Namachamata pits at the Gold Ridge project. “The zone presently has a strike extent of 300m, is up to 150m wide, and extends to at least 250m vertical depth. The zone remains open to the south and at depth. The expectation at Charivunga Gorge is for better than average grades and for considerably better recovery than evident elsewhere, due to the lower levels of arsenic in this new zone (News Release) Highlights include 17 metres of 1.11 g/t gold from 213 metres down hole in DDH-151 and 38 metres of 4.78 g/t gold from 187metres down hole in DDH-154. Responding the these drill results in a flash update, Haywood Securities analyst Andrew Kaip, writes "While these results are encouraging, several of the intervals reported are too deep to add to near term open pit resource growth." He also believes that "delineation of shallow resources is the significant value-add within the CMZ."

Australian Solomons expects to begin drilling a 300 x 150 mineralize zone between the Kupers and Namachamata pits to a vertical depth of 80 metres below surface with a man portable rig (which is slated for arrival in mid Q1/08). Kaip views this potential as favourable given the previous results of 30 metres of 1.62g/t gold from 16 metres down hole and 22 metres of 1.8g/t gold from 126 metres down hole in DDH-138.

Kaip expects the receipt of political risk insurance and project debt credit approval in Q1/08 which he believes will set the stage for an equity financing in late Q1/08 or Q2/08.

Target Price and Valuation

Kaip maintains his 12 month target of $1.75/share based on a 1.0x multiple of his after tax NAV (5% discounted) of US$159 million or US$1.49/share on a fully project financed basis.

Click here to check out a recent interview with John Blake, CEO of Australian Solomons Gold on BNN – November 29/07

Buy, Sell or Hold Osisko Exploration (OSK:TSX)

PI Financial mining analyst, John Kiernan initiates coverage on Osisko Exploration

Company Profile

Osisko Exploration, established in 1988, is a Canadian, Montreal-based advanced precious metal mineral exploration and development company that trades on the TSX Exchange under the symbol OSK and the Frankfurt Exchange (EWX). Osisko Exploration Ltd holds a 100% interest in the Canadian Malartic gold deposit in Quebec, Canada, one of the world’s best mining jurisdictions. Work on the project aims to evaluate the deposit and the 100%-owned adjacent areas for a large-scale open-pit, bulk-tonnage mining operation. A preliminary NI 43-101 compliant inferred gold resource estimate of 6.5 million ounces on the main deposit was released on December 6, 2006. It was followed by an updated calculation of 8.4 million ounces on July 5, 2007. Canadian Malartic is one of the world’s largest undeveloped resources wholly owned by a junior explorer, and is located in a mining district near extensive existing infrastructure.

Event

On November 20, PI Financial analyst John Kiernan initiated coverage of Osisko Exploration (OSK:TSX) with BUY rating and a C$8.40 target.

Highlights From The Event

Osisko’s 100% owned Malartic property owned hosts an 8.4M oz inferred gold resource amenable to open pit mining in Quebec, Canada. The company is targeting production in 2010 at an annual rate of 450,000 ounces. Kiernan holds out the possibility that Osisko will be able to prove up +10 million ounces at it Malartic property with the current 150,000-metre infill drilling program it currently has underway. As a result of this, Kiernan believes Osisko would be an ideal takeover candidate due to the size of its deposit, low political risk in Canada and exploration upside.

There are also quite a few near term catalysts that have to potential to propel Osisko’s share price significantly higher such as a scoping study which due to be completed by year end 2007. The company is also expecting to put out an M&I (measured and indicated) resource calculation in the second quarter of 2008 and ongoing drill results from the western porphyry.

With the closing of its most recent financing, Osisko will have $200 million in its treasury, no debt and can fast track the development of its mine.

Target Price and Valuation

Kiernan has derived a NAV of $1.51 billion or $8.22/share and believes Osisko warrants a premium valuation due to reasons listed above. He utilizes a weighted average of the 1.5X P/NAV multiple, two targets derived from a comparative valuation and a takeover valuation to arrive at his 12 month target of $8.40/share. He slaps Osisko with a SPECULATIVE risk rating.

Gold Is Money And Nothing Else

If you are still not convinced regarding the fundamental rationale for buying gold (bullion, coins etc.) and gold equities after the "Global Gold Outlook" report by RBC Capital Markets i posted a few days ago, maybe this next report will convince you.



On November 12, 2007 Paul Mylchreest of Redburn Partners wrote a 104 page report regarding his thesis for a US$1500/oz gold price.

His thesis: "The biggest credit bubble in modern history is showing signs of unravelling in the US. Debt/credit expansion brings forward consumption – it must either be purged in a deflationary recession, or inflated away through currency debasement. Gold wins in either scenario and is the “go to” asset along with basic commodities, like food and energy."

Click Here For The Redburn Partners Gold Report.pdf (GATA)

Global Gold Outlook

Gold - Returning To A Monetary Standard



“Global gold demand in the third quarter rose 19 percent year-on-year to 947.2 tonnes on the back of robust inflows into bullion investment funds and improved jewelry consumption, industry-sponsored World Gold Council (WGC) said on Thursday” (Reuters – Nov 14 2007).

“On the currency markets, the dollar index, which tracks the performance of the greenback against a basket of other currencies, fell 0.4% at 75.57” (Marketwatch – Nov 14 2007).

“December crude-oil futures traded on the New York Mercantile Exchange rose more than $2 to an intraday high of $93.60 a barrel” (Marketwatch – Nov 14 2007).

With headlines like the ones I’ve posted above, is buying gold and gold equities a no brainer?

I’m convinced it is but personally I would wait for a short term pullback in the price of gold to add to my existing positions.

If you are wondering about the fundamental rationale for buying gold and gold equities, RBC Capital Markets, released a report on November 12, 2007 entitled “Global Gold Outlook” extolling their thesis for an upward move in gold prices.

Click here for the Global Gold Outlook report (BeEarly)


Sources

1. http://www.reuters.com/article/marketsNews/idUKN1359172520071114?rpc=44 (Reuters)
2. http://www.marketwatch.com/news/story/gold-rises-sharply-boosted-dollar/story.aspx?guid=%7BEFFE3806%2DA21D%2D428A%2DBA4F%2DC3A8EFAC26DA%7D (Marketwatch)

3. http://www.marketwatch.com/news/story/oil-rebounds-93-low-inventory-expectations/story.aspx?guid=%7BD3978A18%2DE0BE%2D459A%2DB5AD%2DBFA78ECEC980%7D (Marketwatch)

Zinc Market Reviw – Canaccord Adams

On November 12/07 Canaccord Adams analysts’, Gary Lampard and Orest Wowkodaw released a review of their global zinc market balance model.



Their findings included:

a) Global refined zinc market to be in significant surplus of 289,000 tonnes
in 2008 and 304,000 tonnes in 2009. They also expect global mine production growth of
9.6% in 2007, 10.8% in 2008 and 6.1% in 2009 and expect the next supply gap to be seen in 2011.

b) They believe Chinese zinc production is on track for 6% growth in 2007, significantly down from the 11-13% levels of the previous four years. Hence, they are assuming continued 6% growth per annum from 2008.

c) Lampard and Wowkodaw also write that “higher spot zinc treatment charges are suggesting that the zinc concentrate market has moved into a small surplus.” As a result, they expect zinc concentrate stocks to increase through 2008 and 2009 and no longer see zinc smelting capacity as a potential blockage.

d) Both analysts are forecasting 2007, 2008 and 2009 global zinc consumption growth of 4.1%, 4.2% and 5.4% respectively and for 2008, they anticipate “steady Chinese consumption growth of 10%, and we expect a further 2% decline in US consumption."

e) Both analysts' see downside risks in theshort to medium term but balanced risks in the long term. Their LME spot zinc price forecasts are as follows:

2007: US$1.51/lb
2008: US$1.31/lb
2009: US$1.23/lb
2010: US$1.10/lb
Long term: US$0.70/lb

Don Coxe Basic Points November 2007

Basic Points [November 2007] - Commodities: After The End Of Disinflation

For the Mr. Coxe's weekly Institutional and Client Call Click Here

To download Mr. Don Coxe's November 2007 Edition of Basic Points click here

Buy, Sell or Hold Gold Stocks/ Equities?

Gold Equities and Beta



Today RBC Dominion Securities analysts Michael Curran and Stephen Walker came out with a report entitled “Gold Equities – Beta Is Back”. The report highlighted the tremendous price move in gold from the August 16th low of $645/oz to the high set yesterday at $848/oz. It also states that the price movements in most gold equities in this same period (August to November) have surpassed the gain in the commodity and the ETF indicating that gold equities are demonstrating “real leverage to a rising commodity price environment.”

They attribute the strength in the gold price to US dollar weakness, which was exacerbated yesterday when the Chinese government stated that it might look to
diversify its exchange reserves out of the greenback and into other currencies. Curran and Walker also suggest that growing prospects for future rate cuts by the US Federal reserve, the political instability in Pakistan and strong oil demand causing increased demand for gold by investors in the Middle East provide a strong macro economic outlook for gold.

The report calls for investors to buy those names that are “demonstrating above average beta-to-bullion,” such as tier 1 producer – Kinross and tier 2/3 producer – Yamana. Another strategy suggested buying lower beta names that might play catch-up with the continued price rise in gold, such as tier 1 - South African golds, tier 2/3 – Iamgold and European Goldfields. On a historical basis, the report finds that in an environment of prolonged rising commodity prices, investors usually rotate from larger cap into smaller cap names (Anatolia, Gold Reserve, Greystar) as laggard plays or M/A targets.

The report also notes that investors who are seeking to buy the highest beta-to bullion stocks should also keep in mind that beta works both ways in that these names will also decline faster in a falling commodity price environment.

Companies Mentioned

Kinross Gold Corp (NYSE:KGC - $20.01; Outperform, Above Average Risk)
Yamana Gold Inc (NYSE:AUY - $14.65; Sector Perform, Above Average Risk)
IAMGOLD Corporation (NYSE:IAG - $9.59; Outperform, Average Risk)
European Goldfields LIMITED (TSX:EGU - C$6.21; Outperform, Speculative Risk)
Anatolia Minerals Dev Ltd (TSX:ANO - C$6.08; Top Pick, Speculative Risk)
Greystar Res Ltd (TSX:GSL - C$7.80; Outperform, Speculative Risk)
Gold Reserve Inc (AMEX:GRZ - $4.99; Outperform, Speculative Risk)

Buy, Sell or Hold Moto Goldmines (MGL:TSX)

Comment from Haywood mining analyst, Andrew Kaip regarding leaked results of DRC review



Company Profile

Moto Goldmines Limited is a gold exploration and development company listed on the Toronto Stock Exchange (TSX) and the London Stock Exchange’s Alternative Investment Market (AIM). The principal focus of the Company is to progress the Moto Gold project in the north-east of the Democratic Republic of Congo from advanced exploration through feasibility and project development to bring the resource into production.

Event

Democratic Republic of Congo (DRC) Review Complete

Updates From The Event

Almost 6 months after the DRC government initiated a parliamentary commission to review license agreements between mining companies and DRC Parastatal organizations, a leaked document of what seemed to be the results was printed in an article by an independent news agency in Kinshasa. (see http://www.lepharerdc.com/www/index_view.php?storyID=4129&rubriqueID=4 for more) The article concludes that several of the concessions that comprise the Moto gold project, joint venture partners Moto Goldmines and Borgamin are deficient in certain aspects of the joint venture agreement with OKIMO (the Parastatal Company). Haywood analyst, Andrew Kaip (in a note published November 5/07) remains confident that the review will establish relative compliance with the existing mining licenses covering the Moto project. He also expects that most of the commission’s concerns will be addressed via the completion of a revised licensing agreement and the release of the Moto project feasibility (which he expects to be released as early as the end of Q4/07).

Target Price and Valuation

Haywood analyst, Andrew Kaip writes ‘on an enterprise value per ounce of gold in resource basis, Moto trades at $12 per ounce, representing a 70% discount to comparable in country peer Banro Corp. (US$40 per ounce). Moto is trading at 0.3x our project 11 % discounted NAV, representing a 38# discount to peers in our coverage universe.” He slaps a 12 month target of $8.60 per share based on a 1.3x base case project NAV (discounted at 11%) of US$486 million or US$5.84/share.

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Buy, Sell or Hold Western Goldfields (WGI:TSX, WGDFF :OTCBB)

Comment From Capital Markets analyst, Michael Curran Regarding Western Goldfields Quarterly Results



Company Profile

Western Goldfields is a gold producer focused on completing the expansion of its Mesquite Mine, located in Imperial County, California, and returning the mine to full production. With a 2.8 million ounce gold reserve, and total resources of 3.9 million ounces inclusive of reserves, the Company is the only multi-million ounce US gold reserve not controlled by a major gold company. The Company is fully permitted and fully funded, and estimates average production of 160,000-170,000 ounces of gold annually during the first eight years of mine life. In June 2007, Western Goldfields announced that its production schedule has been moved ahead by one full quarter, which will bring the company into full production by January 2008.

Event

On November 1/07 Western Goldfields announced its third quarter results, ending September 30/07.

Key Points From the Event

The company reported a net loss of $36.4 million, or $0.31 per share for the three months ending September 30, 2007. The bulk of that loss was due to a non-cash loss of $28.3 million, resulting from the mark-to-market of forward gold sales contracts. With regards to this loss, RBC Capital Markets analyst, Michael Curran writes in a note published on November 2 that “We consider the accounting treatment of marking-to-market as particularly misleading in the case of Western Goldfields, as WGI is the only company we know who's hedgebook has contracted gold prices above the current spot (429Koz sold forward at $801/oz over the period 2008-2014). The $28.3MM loss represents the estimated cost to eliminate the entire hedge position on the date the
financial statements were assembled (Sep 30, 2007). Obviously, the company has no need or desire to do this, as the mine has not yet begun operation, and the hedge position is a requirement from the lenders of the $105 million term loan to fund construction of the Mesquite mine. Backing out non-cash items, operating EPS was a loss of $0.06/sh, slightly lower than the $0.03/sh loss we had forecast. CFPS of -$0.05/sh was also slightly below the -$0.03/sh we were looking for.”
With regards to developments at the Mesquite mine, Chairman of Western Goldfields, Randall Oliphant writes “We continue to meet the milestones we have set. Everything is now in place to make Mesquite a successful producing mine and to establish a platform for the growth of Western Goldfields.” Additionally, President and Chief Executive Officer, Raymond Threlkeld backs ups Mr. Oliphant’s views by saying “Pre-stripping operations are now well advanced, new ore is being placed on the leach pad and we look forward to achieving commercial production in January 2008.” RBC Capital Markets analyst, Michael Curran is also supportive of this view.
Western Goldfields also stated in its press release that it has “$53.9 million of available capacity under the term loan facility and that as of September 30/07 “the Company's available cash balance was $18.0 million, restricted cash was $7.5 million and working capital was $23.6 million.” However, “on October 12, 2007, the Company completed a further common share equity financing at a price of C$3.05 per share, which provided net proceeds of $33.5 million” to further bolster its financial position through the commencement of production at the Mesquite mine.

Target Price and Valuation

In his note, RBC Capital Markets analyst, Michael Curran wrote that “on a forward-looking P/CF multiple analysis basis, we forecast Western Goldfields could achieve $0.37/sh of CFPS in 2009, when the Mesquite mine attains full production. We then discount this 2009E CFPS back to 2008 at 20% per annum (for the execution risk that
the project is delayed, significantly altered, etc.), suggesting $0.31/sh in 2008. Applying our target multiple of 12.5x P/CF on this estimate for Western Goldfields suggests a fair value of C$4.14/sh” keeping in mind that his gold price forecasts are “$670/oz for 2007,
$730/oz for 2008, $760/oz for 2009 and $790/oz for 2010”.

Curran maintains his 12 month target price of C$4.50/share and his Sector Perform rating on Western Goldfields (representing upside of 16.9%).

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Buy, Sell or Hold Brilliant Mining (BMC:TSXV)

Comment From Versant Partners Analyst, Ian Parkinson Regarding Brilliant Mining's Quarterly Update

Company Profile

Brilliant Mining Corp. (BMC: TSXV) is an international nickel explorer and producer. The Company holds a 25% interest in the Tramways Tenements Project, host to the producing Lanfranchi Nickel Mine, located in the World Class Kambalda Nickel District of Western Australia. Mining at the Lanfranchi Mine is ramping up to a projected 8,000 tonnes (17.6 million lbs) of Ni metal production for July 07-June 08 and is targeting nickel metal production of13,250 tonnes (29.2 million lbs) for July 08-June 09. With the Lanfranchi Mine in Australia and early stage projects in Canada, Brilliant is capitalizing on nickel opportunities from exploration to production.

Event

On October 30th, 2007 Brilliant Mining provided its investors with a quarterly update and “reported that production from the high-grade Winner orebody commenced on October 14, 2007” (Brilliant Mining - Oct. 30/07 news release). The company also “provided an ore delivery summary for the Quarter ending September 30, 2007” (Brilliant Mining - Oct. 30/07 news release).

Key Points From The Update

Winner ore production commences, ore deliveries total 2,600 tonnes of ore grading 6.6% Ni for 172 tonnes of Ni metal (between Oct. 14- 29)

For the quarter ending September 30/07, ore delivery was 52,523 tonnes grading 2.08% Ni for 1,098 tonnes of Ni metal

The Lanfranchi mine is on target to produce 8,000 tonnes of Ni metal for the July 07 – June 08 production year. “The forecast is based on 2.65% nickel, up 50% from the previous year due to higher grades at Winner and Deacon” (Versant Partners Oct. 31/07 Research Report).

“The forecast for 2008-2009 of 13,125 tonnes contained nickel is achievable if ramp-up at Deacon (with an indicated resource grading 3.09% scheduled for first development ore production November 2007 and first longhole stope ore production March 2008) and Winner proceeds as planned” (Versant Partners Oct. 31/07 Research Report).



Price Target

Versant Partners analyst, Ian T. Parkinson maintains his 1 year price target of $4.00 with a Speculative Buy rating (representing upside of 131%).