7/15/2013

Big Gains follow a Big Sell-Off

at least historically for the price of gold. One potential way to realize the largest slowly realized gains for this thesis may be to invest in some of the best small cap junior miners.
June 23rd I mentioned GSS for a post "using near 52 low as a starting point for a margin of safety". One of the thoughts for GSS although speculative was its sound financial position, severely beaten down (-65% 52 week change), historically and industry low valuations with a potential favorable black swan event in the gold mining industry.
Another factor for introducing was not the mean reverting 52 change of -65.01% or the book value of 1.63 (P/B = .29), and cash per share of .30 but the further support from the strong diversified recent insider buying above the stock's current price. GSS has moved up ~ 29% from the June 23rd post price of .40 to .51 but now with gold prices moving higher and possible regaining its place in portfolios to hedge against reckless central bankers junior gold miners may be the best most aggressive way to play what may be an inevitable long recovery of gold prices. I can't know.

Golden StarResources, Ltd. (GSS) is a successful 25 years old gold exploration and production company established under the Canada Business Corporations Act.

Insider activity was positive for 2011, 2012, and YTD 2013. June 24, 2013 42,000 shares were purchased for .48 per share. During 2012 there were multiple substantial insider purchases, 767,197 shares for an average price of 1.12 or $686,009 in total cost. 100,000 shares were purchased for an average price of 2.23 or $232,000 during 2011.
A total of $1,019,357 was expended on 828,009 insider share purchases for an average price of 1.23 during the 2011 to YTD 2013 period was an important indication of management's confidence of the future operations and future shareholder value creation.

GSS Golden Star Resources is tiny with  a market capitalization of only 132,170,000 or an enterprise value of  161,750,000.

Additional valuation measures:
Current price = .51
Price/Sales (ttm): 0.23 versus the industry average of 2.4
Price/Book (mrq): 0.29 versus the industry average of .90
Enterprise Value/Revenue (ttm): 0.29
Enterprise Value/EBITDA (ttm): 1.46
3 year revenue growth was 11.20%

The current price of .51, P/B and P/S  are all near its 10 year low. 

The strong balance sheet has plenty of cash, 78.35M or .30 per share and if needed can ride out lower gold prices. The strong financials provide additional benefits such as ability to cover and expand exploration expenses over the next few years.

Negatives do exist for this well run tiny company. Concentration of gold operations in Ghana, reserves have steadily dropped and exploration costs have increased.

Debt was aggressively reduced over the previous 4 quarters , 304,955,000 balance on 03/2012 to 281,785,000 on 03/2013 .

52-Week High (Oct 16, 2012):2.11
52-Week Low (Jul 10, 2013):0.40

Value still exists for this speculative idea even after the run up from the June 23 post price of .40
GSS is very speculative and contingent on many factors out of its controls even if the shares traded as high as $6 in late 2010.


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