Still like Gammon Gold
After its sharp run up from $7 per share since January, there is still a lot of potential in this high price gold and silver mining company. I took the time to analyze the 2006 annual reports and found that Gammon is a great investment even as the stock nears $10 and the company is just now turning profitable.
Gammon Gold produced plans on increasing gold production by 40% in 2009 to 280,000 ounces, similarly they plan to increase silver production by 50% to 15,000,000 ounces. The high prices of gold and silver has made it possible for Gammon Gold to start producing more metals, and now profit from their own mining operations.
In 2006, the company lost a large amount of money. Based on a $606.99 gold price and $12.18 for an ounce of silver, Gammon Gold lost $28 Million. Since then, gold prices are up nearly 70% and silver prices have almost doubled. If their plan works, by 2009 the added production will turn Gammon Gold back to profitability and deliver a bottomline profit of $112 Million.
These calculations were made with current metal prices in mind. By 2009, I think we could see $30 silver and $1500 gold, further boosting Gammon’s profitability. Luckily for this company, they are in no way hedged to the price of metals and are perfectly positioned to profit as metal prices rise. Many mining companies sell future contracts that state a certain price for each metal, Gammon does not hedge its positions and will do well as prices rise.
It was a buy at $7 and its a buy at $9.50. This stock will benefit heavily from higher metal prices in the future and the giant increase in production, beginning in 2009.