CymorFund Stock Picks – Detour Gold Corporation

Whats-Hot-or-Not
Periodically we publish our stock picks. Stocks that we like are “Hot” and listed below. Stocks not considered hot are ‘sold’.

Whats-Hot-or-Not
Buy Detour Gold $15.57  (DGC on TSX; DRGDF on OTC)

Detour Gold

During the last 60 days, there has been a meltdown in the price of some outstanding resource companies. Detour Gold Corporation is such a company. DGC is producing gold, and is in position to become Canada’s largest operating gold mine. Its shares were trading in October 2012 in the $28 range, and there has not been any significant negative event. Yet as a result of the general disfavor of gold stocks, the price has plummeted to $16.

The price of gold one year ago was under $1,550 / oz and while the price has been quite weak lately, it remains above those lows. Yet the price of gold producing companies has plummeted.

If you are looking for a a stock that is a steal, Detour is such a stock.  As recently as 30 days ago (March 2013), brokerage firms were putting price targets ranging around of $47 / share. Yahoo Finance currently has an average one year target of $36 / share.

Today Detour Gold is trading at $15.57 /share.

Remember what Baron Rothschild said – “Buy when there is blood in the streets”.  Remember what Warren Buffet said – “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”. This is an ideal time to follow these tried and true rules of investing.

Some Background on Detour Gold Corporation
The Company’s primary focus is the successful ramp up of its flagship asset – the Detour Lake Mine, located in the mining-friendly territory of northeastern Ontario. With more than 15.6 million ounces in reserves and excellent growth potential, Detour Lake is on track to become Canada’s largest operating gold mine.

The company has a market cap of just under $2 billion with approximately 120 million shares outstanding (pre-dilution). 30 days ago, the company had a market cap of $3 billion, now under $2 billion. (Bargain days to buy this stock!) As at December 31, Detour had $226 million cash on hand, almost $2 cash on hand for every share outstanding.

The company has gold reserves at its mine site of more than 16 million ozs, owns a massive land position, and expects to increase its gold reserves by further exploring its lands. It’s own presentation on its website projects the reserve to exceed 20 million ozs.

When fully operational, DGC expects to produce 650,000 ozs gold annually with a projected total cash cost of $749 /oz. If the price of gold stays at its current level of $1,550 per oz, this means an annual cash profit of about $520,000,000, or about $4.50 per share before expenses.

Management Strategy
Most senior gold producers have a strategy of watching junior gold exploration companies develop their assets, and when the asset is proven sufficiently, the senior producer buys the asset. Senior producers don’t mind paying enormously inflated prices as long as they know the asset is real and increases their reserves and production. Unfortunately, this policy has proven less than satisfactory for most acquisitions.

Whether it be Barrick Gold Corp (ABX) $3 billion writedown on a Zambian mine it bought in 2011, or Kinross Gold Corp (K), $3.09 billion writedown at the Tasiast gold project, an African mine acquired in 2010, or Rio Tinto’s acquisition of Ivanhoe Mines in Mongolia which now looks to be a spot of trouble, the traditional route of growing a gold mining company is fraught with difficulty.

Detour on the other hand asserts that it has a wonderful asset, it will develop that asset, it will explore surrounding territory for increasing that asset, and will not venture afield. It is a refreshing attitude among the gold producing companies.

Cautions
If there is a caution, it is where the price of gold will be in the future. Many pundits project further future weakness, while just as many analysts project a striking and dramatic price increase. People who remember the last great gold price spike in the 1980’s to $800 / oz gold, remember a dramatic fall to $250 shortly thereafter.

We think the price will moderate to above $1,200 /oz gold, which would still leave this company very profitable.

CymorStockPicks Record
In spite of the tremendous melt down over the last 60 days of resource stocks, CymorStockPicks have held up remarkably well. When you listen to the hype and nonsense of buy or sell recommendations, consider just how well our stock picks have done in the worst melt down, that some say is now worse than 2008. Our picks ARE UP IN VALUE.

This is in spite of the fact that EMD had its funds confiscated in Cyprus, and despite that is still it is holding up well.

 

We may or may not have positions in the securities we name. Whether an investment is made in a particular security depends on many factors, including portfolio balancing, timing, cash and capital reserves, asset allocation and numerous other factors. Readers are advised to do their own research and decide in light of their own circumstances. Matters discussed contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied.

The views expressed are opinions and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment. This report is for information purposes only, and is neither a solicitation nor recommendation to buy or sell, nor an offer to buy or sell securities. We are not a registered investment advisor nor a broker-dealer in any jurisdiction. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data.

 

 

By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.