- Freeport-McMoRan Q1 2016 Earnings Review: Higher Copper Shipments Partially Offset Impact Of Weak Copper And Oil Prices On Results
- Freeport-McMoRan’s Q1 2016 Earnings Preview: Decline In Copper And Oil Prices To Negatively Impact Results
- What Is Freeport-McMoRan’s Fundamental Value Based On 2015 Results?
- By What Percentage Can Freeport-McMoRan’s Revenue & EBITDA Change Over The Next 3 Years?
- Freeport-McMoRan: A Look Back At The Year 2015
- How Has Freeport-McMoRan’s Revenue Composition Changed Over The Last 5 Years?
Submitted by David Gould through our contributor tool
The Fed’s recent announcement that it will be targeting low interest rates until late 2014 sent gold companies soaring as investors quickly flipped to inflation hedges. With seemingly no end to government spending, inflation is a reality that will continue to eat away at retirees’ hard-earned wealth. As fiat currency loses its value, however, fortunes will be inevitably made by those who take defensive positions and back small-cap gold miners now.
In an earlier article that I wrote here, I argued that Yamana Gold (AUY) would outperform Goldcorp (GG). My forecast proved accurate as Yamana surged by more than 1,250 bps above the latter at a stellar return of 23.5%. This also beat the return of the Dow Jones by more than 3x!
More than a month earlier here, I predicted major upside for Freeport (FCX) and since then the stock has risen by 14.4% – again, basically tripling the broader market. Consensus estimates for Freeport’s EPS forecast that it will decline by 11.6% to $4.28 in 2012 and then grow by 28.3% and 3.5% in the following two years. Analysts currently rate shares a “strong buy”.
As confident as I was about Yamana Gold and Freeport, I am even more confident about Mustang Alliances (MSTG). Mustang is a junior mining company that is an ideal takeover target for the major gold titans. Whereas mature firms are being held back by the “law of big numbers”, this does not apply to smaller firms that have the capacity to explode in value. Crocodile Gold (CRK.TO) rose by 514% in just one day… here’s why Mustang is well positioned to appreciate even more:
Mustang has exclusive rights to the Corpus I-V and El Potosi concessions in southern Honduras’ Choluteca District. This area was commissioned by the Certified Technical Report in 1997 and found to have gold samples worth upwards of a colossal 305.2 g/t – the equivalent of around 100 Hope Diamonds. The Honduran government, however, imposed regulations that denied foreign gold players the right to develop the region. Consequentially, while local “pick and shovel” miners have been yielding up to 1K oz of gold per month, the region’s significant potential has been nowhere close to fully tapped.
PREDICTABLE RISE: Even if Mustang is just as successful as the local miners have been thus far, the company is already significantly undervalued. 1K oz worth of monthly gold production at a 12x price-to-sales multiple is worth $250M. However, with significantly more resources to develop than “pick and shovel” miners and gold prices expected to rise by leading experts, this figure may very well be an understatement of the value.
TAKOVER POTENTIAL: And then you have the fact that the Honduran government is significantly relaxing regulations on the major firms like Freeport, Goldcorp, and Barrick (ABX). Having secured rights to the Corpus I-V and El Potosi regions, Mustang will need to be bought out for these major producers to strike upon the full value of the region.
More than half a decade ago, Goldcorp acquired the El Sauzal mine from Glamis Gold for $9.5B. This deal created overnight millionaires and secured rights to a region that had ore samples averaging between 0.4 – 0.6 g/t. With some gold samples being found to be worth upwards of 500x that value at the areas that Mustang is developing, one can only imagine what its takeover potential will be.
While the speculative vale of Mustang is tremendous, it is also a very safe value play. Robert McEwen of Goldcorp anticipates that gold will trend above $5K/oz, which means more than 287% appreciation just off a pure basic materials investment. As larger producers increase takeover activity, Mustang will prove itself to be, in my view, a predictable winner – just like how my previous picks demonstrated.
DISCLOSURE: The distributor of this research report, Gould Partners, is not a licensed investment adviser or broker dealer. Investors are cautioned to perform their own due diligence as information contained within this report has been derived by public sources and cannot be guaranteed by us to be fully accurate. We are a consultant to a third-party EAG, representing Mustang and have received one thousand dollars for independent research. Always discuss investments with a licensed professional before making any financial decision. Statements made herein are often “forward-looking statements” as stipulated under Section 27A of the Securities Act of 1933, Section 21E of the Securities Act of 1934, and the Private Securities Litigation Reform Act of 1995. Since these statements are uncertain, actual results may be materially different from those expected.