The company currently does not generate any operational revenues. Its common shares started trading about a year ago on the OTCQX. Earlier this month, it announced test results for its flagship mine. The tests were performed by McClelland Labs of Nevada under the supervision of M3 Engineering of Arizona. The test revealed metallurgical recoveries of gold and silver at the Buriticá Project of 95.4% (Gold) and 48.6% (Silver). Most of the gold can be extracted through gravity separation with an average recovery rate of 73.8%. This should give more confidence to its investors that the firm can produce gold at predictable cash costs.
In 2012, B2Gold and Continental gold went up by 22.2% and 24.1% while trading at the pink sheet. However, in 2013, following the steep decline in gold prices, both have dropped by 36.7% (B2Gold) and 52% (Continental) respectively. Both firms represent different ways for gold bulls to find value once the bull market resumes following the current shake-out. The physical demand for gold at current prices will continue as societal demand in Asia and the Middle East will more than likely outstrip current supply. The question overhanging both of these firms, of course, is the political climate in volatile places like Colombia and even the Phillipines. B2Gold’s diversifying into the Phillipines is a strong move given how strong the demand is regionally and how resilient the Phillipine economy is proving to be.
The Takeaway
One of the things that is important to remember when buying gold miners is first valuation risk and the second is political risk. In the case of the firms I mentioned at the top of the article Valor and Barrick Gold Corporation (USA) (NYSE:ABX) we have examples of each one carrying the first but not the second. Nevada is as politically friendly a place as there is for mining companies and the quality of the deposits that are begin discovered are some of the best the industry is producing at the moment.
For an explorer like Valor, they are trapped by the dearth of available investment capital plaguing the industry at the moment. But, Barrick Gold Corporation (USA) (NYSE:ABX), as a firm, has made a number of mistakes in terms of valuing properties and the recent ruling against them at Pascua Lama is a prime example of this. And I do not see that materially improving in the near future. Given how difficult the mining industry is at this point and that Barrick has apparently re-opened its hedge book, means that it will continue to yield up a poor return on investment.
So, in contrast to B2Gold Corp Common shares (Canada) (NYSEMKT:BTG) and Continental, they offer up a valuation problems versus the potential for political risks for doing business in South America and Southeast Asia. That said, the valuations in the gold mining sector, especially junior producers is so poor that valuation risk at this point is significantly low enough to warrant a look at companies like these in relatively unproven jurisdictions. This is especially true while gold continues to languish in price with investor sentiment as bearish as it has been since the bull market began back in 2001.
The article 2 Gold Stocks for Emerging Market Plays originally appeared on Fool.com and is written by Peter Pham.
Peter Pham has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Peter is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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