Gold’s Rebound Uncovers Junior Buying Opportunities

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Gold prices after an historic crash have rebounded very sharply. Since hitting $1320 per ounce on Monday April, 15th, Gold (NYSEMKT:GLD) has risen as much as $145 and looks ready to climb even higher to end this week.

Gold has risen every year since 2001 but is off more than 10% this year so far. Investors buy the yellow metal as protection against currency and savings buying power erosion. But, the combination of poor economic data and slowing inflation despite the Federal Reserve’s quantitative easing had investors skittish about the Fed ending its monetary stimulus program.   That’s the official story.  There are reports of failures to deliver allocated gold circulating as well as the announcement that allocated bullion accounts at Dutch banking giant ABN Amro would be settled in cash rather than physical metal which has radically increased the demand for the physical metal around the world.

The subsequent wipe out in gold mining stocks in the face of a sharp rebound and unprecedented investor demand for physical gold and silver (NYSEMKT:SLV) presents a great opportunity for investors to buy assets in the ground at highly discounted prices.  As well, exploration stocks are now very cheap and major producers will be looking to replenish reserves now that oil prices have eased, allowing them to increase margins and make bids for high quality future reserve assets.

Timmins Gold (NYSEMKT:TGD) is a commercial Gold miner and producer company. The management of the company has announced that there is some potential near the San Francisco mine in Mexico for new discoveries. In November last year, the company announced the discovery of a new mineralized zone 1 kilometer east of its exiting open pit. There are two pits in the San Francisco, the San Francisco pit and the La Chicharra pit. The company has several prominent shareholders including Sprott Asset Management, Van Eck, and Oppenheimer Funds.

Timmins is an un-hedged Gold producer selling 100,000 Oz in 2012, compared to 74,241 ounces in 2011, and planned to increase to 130,000Oz in 2013. Last year, the company added 2.2 million ounces in its reserves.

Revenue for 2012 came in at a record $156.2 million versus $90.8 million for the nine months ended December 31, 2011. The company posted profit from operations at $60.6 million compared to $36.6 million during the nine months ended December 31, 2011.

Kirkland LakeCoorp. (NASDAQ:KIRK) suffered a loss of $5.7 million before taxes in the third quarter. However, the company has achieved its target to reduce costs for the third quarter in 2013. In the quarter, Kirkland posted operating cost of $288 versus $360 per ton in the corresponding quarter of 2012. The company sold just 17,340 ounces of Gold in the third quarter due to poor weather conditions which closed roads. Revenue and inventory were impaired due to the weather conditions and its net loss surged up to $1.8 million. For upcoming fiscal year the company is estimating to sell over 90,000 ounces of Gold, which is towards the lower end of revised guiding range.

Kirkland successfully completed testing of its prototype battery scoop underground and it is performing well and has maintained that its expansion project budget of $95.0 million is well on track and of which $72.7 million had been spent by the end of October.

Kirkland is keen on expansion and has completed the acquisition of Queenston Mining Inc.’s 50% interest in seven joint venture properties.  But Kirkland Lake’s margins have finally turned the corner in Q2 2013 and the company looks like it has stopped its operational slide.  Trading at a current P/E of 15.6 and a forward P/E of 12.6 Kirkland Lake has traded strongly opposite the prevailing trends in the gold price this year.  Looking at a weekly chart the stock needs to put in a weekly close above $12.04 per share this week to create a strong buy signal.

Shifting gears, the most important thing to know while investing in an exploration company is its properties and geological team. Valor Gold Corp. (NASDAQOTH:VGLD) has both.  A strong portfolio of properties in the the very prolific area of north central Nevada with produces 11% of the world’s annual gold.  Its Red Rock property is situated between four major producing gold mines and at the intersection of three major trends which have produced more than 110 million ounces of gold. With an external geologic advisory board and drill targets established for 2 of 4 major zones of interest Valor is in a position to make a significant discovery in 2013.

As the gold price continues its rebound back towards $1600 and, most likely, beyond these firms represent good opportunities to get un-hedged leverage on it.

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