Macro Tsimmis

intelligently hedged investment

Buy Golden Star Resources (GSS)—yep, again!

Posted by intelledgement on Fri, 24 Aug 07

OK, we freely admit we have no idea why The Street is so heavily discounting the value of this company and their properties at this point…the stock dropped from $3.69 on 10 August to $2.92 (with an intraday low of $2.65) on 16 August…but these prices, if not insane, are at least irresistable.

If you look at profitable gold mining companies, their reserves on average are valued at around $210/oz in terms of marketcap/ounces. At the $2.96/shr GSS closed at yesterday, they have a marketcap of  $694MM, which means their 4.15MM ounces of reserves are being valued at $167. That is cheap, but consider the likelihood that GSS reserves are at least 20% higher than the number they reported last 31 December and the disparity is even greater: $139/oz. The stock would have to go to at least $4.50 just to have an average valuation…and if the costs come down and the production goes up as expected over the next 18-to-24 months, GSS shares should probably be trading at a premium valuation.

In any event, they are too cheap to ignore here and so we are acquiring another tranche.


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