A selection of 20 listed gold stock “top potential acquisition” targets hold 258m ounces of the stuff, valued at just USD 32.61/oz, with billions of pounds of copper, to boot. Author: Barry Sergeant Posted: Wednesday , 08 Apr 2009

JOHANNESBURG –

Recent patterns in the pricing of listed gold stocks around the world shows a firm trend where investors tend to favour potential acquisition targets, typically companies with great discoveries but lacking either the balance sheet or full access to capital required to develop appropriate mines. Depending on the potential target, valuations vary widely; 20 of the most likely targets show numbers where proven gold in the ground is valued from as little as USD 3.11/oz to USD 152.69/oz.

At the same time, major mining stocks have been relatively quiet on the acquisitions front, even over the past few months when valuations for smaller mining stocks, in particular, were often decimated. Looking back, Tier I gold digger Kinross has been among the most active; earlier this year, it spentUSD 250m buying Lobo-Marte in Chile; during 2008 Kinross completed a CAD 1.2bn merger with Aurelian, and, in 2006, completeda USD 3.1bn merger with Bema.

Newmont , also a Tier I gold stock, this year boughtfor more than USD 1bn the 33% it did not own in Australia’s Boddington gold mine, which boasts 20m ounces of proven and probable gold, and is close to start-up. During 2008, Newmont tookits stake in Gabriel up to just under 20%. During 2007, Newmont acquiredMiramar for CAD 1.5bn.

Among other major gold transactions, Tier I member Goldcorp in 2008 acquiredGold Eagle in a CAD 1.5bn transaction, and Australia’s Lihir , likewise a Tier I member, made a friendly USD 1bn acquisitionof Equigold. Kinross most recently bought a stake in beleaguered diamond stock Harry Winston , possibly indicating either that diamond stocks are an absolute bargain, or that nothing is wildly attractive in the far broader gold universe.

For investors who dream of elephant country, most of the world’s top ten gold deposits are well accounted for. Starting from the top, the Witwatersrand Basin has been mined by dozens of companies for more than a century; Muruntau (which also contains silver) is State-owned and run; then there is Grasberg (primarily copper, owned mainly by Freeport-McMoRan ), Olympic Dam(copper, BHP Billiton ), Pebble (copper, Northern Dynasty , and Anglo American ), Natalka (Polyus), Sukhoi Log (Polyus, maybe), Oyu Tolgoi(copper, Ivanhoe Mines , and Rio Tinto), Reko Diq(copper, Barrick , the world’s biggest gold stock), and Lihir .

Leaving aside complete company takeovers, only two of these assets, Pebble and Oyu Tolgoi, are readily available, so to speak, and both projects have senior miners as partners, as indicated: Northern Dynasty/Anglo American and Ivanhoe Mines/Rio Tinto. Even if the two senior miners are the only likely predators, investors believe the story; Northern Dynasty and Ivanhoe Mines both rank as among the best performing stocks in the world over the past while.

Assuming Ivanhoe Mines ends up with half of Oyu Tolgoi – something not yet settled with the Mongolian government – that would be an attributable 15.8m ounces of gold. Based on Ivanhoe’s market value of USD 2.4bn, that means that the Oyu Tolgoi gold ounces attributable to Ivanhoe Mines are valued at some USD 152.69 each. This is very high indeed; Northern Dynasty’s gigantic 47.1 m attributable ounces of gold at Pebble are valued at a mere USD 12.10/oz. Both Oyu Tolgoi and Pebble rank as primarily potential copper mines.

Compare these numbers with Western Copper, which holds 8.0mounces of gold at its Casino project in the Yukon; the deposit also holds economic copper, silver and molybdenum. While the project as a whole is more advanced than either Oyu Tolgoi and Pebble, the market values Western Copper’s gold ounces at Casino at a mere USD 3.22 each. The 3.0mounces of gold held by San Anton Resource at Mexico’s San Anton Property (Goldcorp , 34%), which hosts the near-surface Cerro del Gallo gold-silver-copper deposit, are valued by the market at USD 8.31 each, compared to USD 26.70/oz for the 6.7 m ounces of gold (some of it attributable from silver) held by Minefinders, also in Mexico. Again, the 13.8 m ounces of gold held at the Volcangold project by Andina Minerals in Chile’s Region III are valued at USD 6.56 each.

Taseko ‘s Prosperity, one of Canada’s biggest undeveloped copper-gold deposits, holds 13.3 m ounces of gold valued at USD 15.74 each, and Detour Gold ‘s property on the Abitibi greenstone belt in Ontario holds 13.2m ounces valued at USD 29.64 each; yet Osisko ‘s 8.9m ounces at its Malarctic project in Quebec scores a rating of USD 121.33/oz. Northgate holds 6.9 m ounces of gold (plus copper) at its Kemess North project in British Columbia and scores a rating of USD 46.77/oz.

Gold Reserve , which has been in something of a fray with Rusoro Mining , holds 11.8m ounces of gold at its Brisas project in Venezuela, with a value of just USD 3.11 each. Crystallex , also in Venezuela, holds a magnificent 16.9 m ounces of gold at its La Cristinasproject, valued at a very conservative USD 3.74 each. While permitting complications and delays inevitably rank high as concerns in developed countries, political and people issues often come to the fore in developing nations.

Moto Goldmines and Banro, both with significantly endowed gold projects in the Democratic Republic of the Congo, show valuations of USD 25.34/oz and USD 8.50/oz, respectively, while Greystar ‘s great 15.0 m ounce Angostura discovery in Colombia scores a valuation of USD 9.84/oz. Centamin Egypt , which is close to production in an ancient country, holds 12.3 m ounces with a relatively lofty valuation of USD 64.29/oz, yet Great BasinGold, which is also close to production in South Africa, holds 13.3m ounces valued at less than half the number for Centamin Egypt. The 5.4m ounces held by Guyana Goldfields at its Aurora project score a rating of USD 26.70/oz.

Novagold , which holds 14.7 m ounces, its 50% attributable number for Alaska’s huge Donlin Creekdeposit, shows a valuation of USD 34.91/oz. The partner at Donlin Creek is Barrick , which agreedwith Novagold as early as August 2007 to settle disputes over the property and advance it on a 50:50 basis. Over the past 12 months, Novagold’s market value collapsed from USD 1.47bn to a paltry USD 70m. The stock price has since risen by 635% from the bottom. For some rough guidance, consider that Newmont reckons that capital costs (on a 100% basis) at Boddington, which is set to produce around 1m ounces of gold a year, will total betweenUSD 2.6bn and USD 2.9bn. Striking it rich in elephant country may be one thing, but having gorilla money to build it is another thing completely.* *

SELECTED “TOP ACQUISITION” GOLD TARGETS

Stock

Value

Gold

USD/

price

USD m

ounces m*

ounce

Western Copper

CAD 0.44

26

8.0

3.22

San Anton Resource

CAD 0.29

25

3.0

8.31

Andina Minerals

CAD 1.40

91

13.8

6.56

Taseko

CAD 1.69

209

13.3

15.74

Northern Dynasty

CAD 7.61

570

47.1

12.10

Detour Gold

CAD 10.75

391

13.2

29.64

Moto Goldmines

CAD 2.83

200

7.9

25.34

Great Basin

CAD 1.44

370

13.3

27.95

Gold Reserve

CAD 0.79

37

11.8

3.11

Ivanhoe Mines

CAD 7.89

2413

15.8

152.69

Crystallex

CAD 0.27

63

16.9

3.74

Novagold

CAD 3.49

513

14.7

34.91

Centamin Egypt

CAD 0.99

791

12.3

64.29

Banro

CAD 1.89

96

11.2

8.50

Greystar

CAD 3.47

148

15.0

9.84

Gabriel

CAD 2.38

492

12.6

38.90

Osisko

CAD 5.25

1083

8.9

121.33

Guyana Goldfields

CAD 3.03

144

5.4

26.70

Minefinders

CAD 8.97

428

6.7

63.55

Northgate

CAD 1.56

323

6.9

46.77

8413

258.0

32.61

** Main project only; attributable ounces.*

*Source: market & company data, compiled by Barry Sergeant*