I traveled around New Zealand a few years ago and was amazed at the natural beauty within the country. The land of Kiwis is well known for its pristine beaches, rolling green hills and adrenaline-inducing sporting activities such as bungee jumping, white-water rafting and surfing. But New Zealand probably isn’t the first country that comes to mind when you think about the gold mining industry. However, I have just discovered a junior miner in New Zealand that I believe could be the world’s most undervalued gold miner.
OceanaGold produced 264,000 ounces of gold during 2008 and is targeting production of 300,000 ounces during 2009. They may very well exceed this target as the company produced 81,093 ounces of gold during the first quarter of 2009 at a cash cost of just $279 per ounce. Oceana achieved its best quarterly gold production in 19 years, in the process turning around a $US11 million quarterly loss last year to a $US9 million profit. Now comes the really amazing part of the story – OceanaGold has a market cap of just $100 million!
Can you name another gold miner with annual production over 250,000 ounces and a market cap under $100 million? How about a market cap under $200 million? $300 million? I think you get the point.
But to be fair, there are some reasons that Oceana has such a tiny market cap. For one, the company has about 1/3 of their gold production hedged through 2010. But their CEO has a strategic reason for not unwinding the hedge book, which he discusses in the article OceanaGold says no plans to end hedges.
And their balance sheet remains a concern, especially with current liabilities exceeding current assets. For the quarter to December, Oceana’s current assets were booked at $US45 million and had increased by March to $US64.8 million. However, in the same period, its current liabilities had increased almost 8%, from $US89 million in December to $US98 million, for the quarter to March.
Similarly, Oceana’s accumulated deficit rose from $US67.9 million to $US109.4 million, from the December to March quarter, driven largely by interest costs, increasing capital expenditure and costs associated with having mothballed its northern Philippines gold-copper development – which requires a large outside capital boost to resume development. But the Phillipines project has massive potential and I believe with the recent production numbers, Oceana will be able to procure the investment dollars it needs.
Back in New Zealand, Oceana just encountered new high grade gold mineralization at their Frasers mine on the South Island of New Zealand. Insiders have been buying and the decline of the NZD versus the USD has been favorable to Oceana’s profit margins.
Despite its balance sheet issues, I feel that Oceana is one of the most undervalued miners in the world and could easily become a 5 or 10-bagger should the price of gold move back above $1,000.
I sent an alert to premium subscribers and added Oceana to the GSB Portfolio on April 27th, buying OCANF at $0.54. The stock has since shot up 26% to $0.68. Update 1/19/10: Oceana is now up about 300% since this recommendation just 8 months ago. The GSB Portfolio ended 2009 with a gain of 133%. You can view the GSB Portfolio and all of the trades that have led to our 133% gain in 2009. You will also receive the monthly contrarian newsletter and email trading alerts every time that I buy or sell. You only pay $35 per month and can cancel at anytime if you aren’t 100% satisfied. Click below to get started!