Posts from the ‘Gold Stocks’ Category

Aug 14

Turning the Corner? Jaguar Mining Q2

I just finished reviewing Jaguar’s conference call and results for Q2. There is a chance, and I do say a chance, that they are turning the corner.

Turmalina

It appears that the worst is over for Turmalina. Costs in Brazilian Real were constant with Q1. Feed grade was reasonable at 3.3g/t. Below are Turmalina’s operating results.

Caete

Caete had the already disclosed problem with the mill break down. $hit happens. Mines inevitably run into operating blips. This affected costs in the short term. But that is a lot different from a grade problem, or a sequencing problem. Those are long term issues. A dysfunctional gear box is not something to worry about.

I think its important to note that while the mill had problems, Caete mining costs remained stable compared to Q1. The company is also moving forward with the expansion of Caete from a 700,000t/y operation to a 900,000t/y operation. Management said that this would raise gold production to a 100,000oz/y level, though I have to say I don’t understand the math on that one.

The company said that they expect significant improvements to Caete in Q4. That means that you shouldn’t expect too much from Q3, apart from a reversal of the one time issues. I think Q3 will look more like Q1, meaning $850/oz costs and 13,000 oz. That would be ok.

Guidance

The company wouldn’t give a mine by mine breakdown of production so far in Q3. However they did provide an aggregate estimate. They said production in July was similar to June, which was 15,000 oz. August was expected to be better than July. Extrapolating to September and adding it all up, one might expect Q3 production to be in the 46,000-49,000 range. That would be a solid quarter and would generate some serious cash flow.

Gurupi and CAPEX Worries

The company gave some details about what to expect for Gurupi. They are investigating other sources of funding. I got the impression that there was a JV of some sorts in the works. I think this would be positive. First of all, Gurupi sounds like its growing, which is great but it also means higher CAPEX. Second, I think that one dead weight on the share price is that when you work out the company’s CAPEX requirements versus cash flow for the next 5 years, there isn’t a lot of wiggle room.

Below is a snipit from Jaguars own press release on February 10th. The tables show how Jaguar expects to fund its capital expenditures over the next 5 years. The most important row to look at is that “Beginning Cash Balance” row. In the first couple of years the cushion is only about $100M. I don’t think the market is comfortable with that cushion given Jaguar’s problematic production past. A cash inflow for Gurupi would allieve these concerns.

Short Sellers

The last thing that was talked about on the CC was the short interest. As I’ve pointed out before, Jaguar has an enourmous short interest. Management believe that most of it is linked to the convertible, where hedge funds short the stock against the convertible to hedge the downside risk. I don’t really know what management can do about this, but they seem to think they can do something. A divided seems unlikely given the CAPEX requirements described above. I don’t think a share buy back would do much. They expect to announce measures to counter the short selling in the next few months. We’ll just have to see what they come up with.

Jul 28

The Good, the Great and the Ugly – Start with the Ugly and OceanaGold

Lots of news and lots of portfolio changes so far this week. When earnings season come I’m generally adding and removing positions on the fly depending on whether the results are meeting my expectations. Add to that the debt ceiling issues and the need to hold more cash than usual with that uncertainty, and you end up with a lot of changes. I want to talk about 4 items in the next few posts.

The Good – Oneida Financial released solid results yesterday and Lydian International released a solid economics study
The Great – Coastal Energy announced some extremely good results
The Ugly – OceanaGold…

I’m going to start by talking about OceanaGold in this post.

What can you say other than what a terrible update! Lower production and much higher costs (61,335 ounces of gold at cash operating costs of $921 per ounce) than anyone would have expected. The chart below looks frighteningly like a hockey stick (we don’t know costs per tonne for the quarter yet). You can’t even blame the cost increase on the New Zealand dollar. Costs are spiking regardless of currency.

Investing in gold companies right now is turning out to be difficult. More difficult then is worth while. The market is not giving the companies any respect for the current price of gold, and the companies are almost all disappointing.

I sold out of OceanaGold this morning in the first six minutes after the market opened. When a company announces an obviously bad result, and you are fairly small fish as I am, you have to take advantage of the situation by selling BEFORE the market figures out what the new fair value is. In the case of OceanaGold, I sold at $2.58, which was a lot less than I would have gotten yesterday, but a lot more than I would have gotten a couple hours later. As you can see below, it took a couple tries before I finally got someone to buy my shares. Unfortunately if I wouln’t have put in such a high bid at the open I might have been able to get out in the 2.60’s. Oh well.

I’ll take another look at OceanaGold some day, but right now I have been disappointed a couple times in the stock, so I’m walking away for a while.

Jul 21

Reshuffling the Deck on the Jaguar Miss

The miss by Jaguar yesterday was disappointing. If you had wanted to look at the bright side you could have focused on the June production number and the performance of Turmalina and Paciencia. But I have learned enough to know that when a “dog” digs a deeper hole, the market will be more than willing to push him down it.

Therefore I really lightened up on Jaguar yesterday. I cut my positions in half in all accounts. One benefit of knowing a company well, and knowing just how good or bad the results are, is that you can sometimes act before the market fully prices in those results. Yesterday I sold a lot of Jaguar above $5 (Canadian) in the first few minutes before the market took the stock down into the $4.80s. Once you have decided to sell, I do not believe you should hold out hope for a better price. Just get out – and that’s what I did.

Here is what I sold and here is what I decided to jump into with some of the proceeds (note that as shown I did lighten up a little on Jaguar on a couple days before the release – call it a premonition but I wasn’t comfortable with the risk I had on the table given the track record of the company).

As the order list shows, I added to OceanaGold, Mercer International, and I started a position in Novus Energy. I wish that I had owned a little more of OceanaGold and a little less of Jaguar to begin with. There was a time when they had equal weightings but I liked the upside of a Jaguar turnaround story better. Unfortunately that story is still on hold, at least at Caete. Now, my positions in Jaguar, OceanaGold and Lydian are all comparable.

I will probably wait and see what Jaguar management has to say on the conference call in August before I make any more moves with the stock.

I plan to talk about both Mercer and Novus more in separate posts.

Jul 19

Caete Kills the Quarter

Not a great update released today by Jaguar .

http://phx.corporate-ir.net/phoenix.zhtml?c=71999&p=irol-newsArticle&ID=1586708&highlight=

I guess that my fears about Caete proved to be true. In fact Caete performed quite a bit worse than I would have expected. Turmalina still appears to be turned around, but Caete struggled in the quarter due to a mill issue. Cash costs ($799/oz) were about $70 higher than Q1. Given that the company said that both “Turmalina and Paciencia, performed at or above targets in terms of gold production, grade and recoveries”, the costs at Caete must have been quite bad.

On the bright side of the report, by June it looks like they had fixed the issues at Caete as production was up at an annual rate of 185,000oz, which would be 46,500oz per quarter.

46,500oz would have met their guidance for the quarter. Unfortunately, what they produced, 40,257oz, did not. Its a miss on production and poor costs to boot.

So what am I going to do tomorrow? Likely sell some. I have learned that when a story isn’t working out the way you had hoped it is better to sell. The good news here is the stock is up almost 20% over my purchase price. So I’ll get some profit.

How much will I sell? That is tough to say. I would want to see how the market reacts first. The market could look positively at the Turmalina turnaround and the June production numbers. And Jaguar has been such a dog for so long that expectations are sure to be low. On the other hand, the shorts can pounce here and they might take the opportunity to. Either way I expect to end tomorrow with a reduced position in the stock.