Sunday share-tips round-up

Sunday share tip round-up: Minera, Chaarat, Petra LONDON (04.December.2011) – Not all companies in the gold sector have benefitted from this year’s rise in the price of gold. One of these is Minera. Production from what is currently its main producing asset, the Corihuarmi mine, in Peru, is set to decline between now and 2016, which may hit its profits in the next few years. As well, there are those who believe that Peru is too risky a country. However, the company’s experienced chairman, Courtney Chamberlain, is unperturbed by the latter, after having dedicated effort and resources to win local communities over by sharing some of the returns from the company’s activity with them. Furthermore, the company has attractive assets which are expected to come on stream by 2015, such as the Ollachea project, which is expected to produce 110,000 ounces of gold a year from 2015. Then there is the valuable mine in the Argentinian Patagonia, called Don Nicolas, which is expected to produce about 50,000 ounces of gold a year. For all of the above reasons the Financial Mail on Sunday’s Midas column is of the opinion that, “ The shares may wobble in the short term but the stock should prove highly rewarding over the next five years.”

Mining often takes place in far-flung parts of the world and Chaarat Gold’s projects are no exception. Its mines are in Kyrgyzstan, formerly part of the Soviet Union, “a country which has experienced bouts of considerable political turmoil since gaining independence in 1991,” explains the Financial Mail on Sunday’s Midas column. Nonetheless, Kyrgyzstan has just managed to hold democratic elections. The most important thing about the company, however, is that in 2007 it thought it had access to 1.9m ounces of gold, but now the figure seems to be nearer to 4.7m. The firm should be producing about 35,000 ounces of gold annually by 2013, rising to 180,000 by 2016. For Midas the fall in the company’s share price this year reflects, “general market aversion to risk, concerns about gold companies that are not yet in production and worries about political stability in Kyrgyzstan. But the company has discovered a huge gold resource. At worst, this company could find it hard to raise the funds it needs to move into full production. At best, it could be taken over at a large premium by a major gold producer. Cautious investors should not touch this share but the adventurous may find it appealing.”

The Sunday Telegraph’s Questor team today comments on gem group Petra, which will leave AIM and move to the main board on the next 8th of December, “marking another step in its transformation into a serious global player in the diamond industry.” No less important, in Questor’s opinion, the company is now a contender for FTSE 250 entry at some point next year, which means tracker funds will have to buy the shares. The gem group has significant growth plans over the next few years, with production expected to increase from 1.1m carats in the year to June 2011 to 4m carats in the year to June 2014. Valuations across the whole sector have been hit after a fall in diamond prices over the past few months and further dented last week by upmarket jeweller Tiffany & Co’s cautious outlook statement alongside its third-quarter results. Yet Questor warns that markets can be very short-sighted, not to mention the recent very quick growth seen in demand for jewelry in Asia, coupled with the fact that no major new diamond mine has been discovered for decades, so that, “both sides of the supply-demand equation are supportive.” Perhaps for that reason, firms such as T. Rowe Price have recently been topping up their holdings. Petra remains Questor’s favoured play on diamonds, who says Buy.

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