CymorFund Gold Stock Picks – Buy Lake Shore Gold

Gold Stock Picks from the CymorFund Investment Letter

We pick stocks with a HUGE potential. These stock picks can have a 10 Bagger potential. If you pick the right stock, the rewards can be enormous.

Lakeshore Gold  at $0.26 is a potential 10 Bagger. The price of gold has fallen to the point that many unproductive precious metals producers can no longer make profits, and the good gold producers like Lakeshore  Gold have been punished along with the margin producers. However the demand for physical gold currently is greater than the supply. Paper gold is being sold by the ETF’s and the Hedge Funds to fund investor ETF and Mutual Fund redemptions, and future gold is being sold by the traders, but physical gold is in ever higher demand. This conundrum seems odd at first glance, but people who actually want the metal are different from people that are trading the future delivery of the metal, much like gambling in a casino.

It is time to grab this bargain

 

Lake Shore Gold (TSX & NYSE: LSG) is dramatically undervalued

Ingots goldOverview

If you buy Lake Shore Gold, you are going against the trend which can be a risky thing to do. Gold is only slightly above its recent lows, and gold stocks have gotten hammered as a result. However, this is providing some incredibly cheap buying opportunities. If you believe, as I do, that gold will not fall back to the $800 level, but will find a short term base somewhere in the $1,200 range, then LSG might be interesting to you.

Physical Gold continues to be in demand worldwide and will continue to be in demand in the future. Falling prices mean more demand in India, China and elsewhere, so gold will not plummet to the levels of the 1980’s. Recently we picked an incredibly cheap gold explorer with the biggest discovery potential, and the safest jurisdiction – Probe Mines Ltd. Today, we pick an ACTUAL GOLD PRODUCER – Lake Shore Gold.  This company is producing gold, and because of some minor temporary setbacks, the markets have punished the company beyond all reason.  Opportunities like this are scarce and when the market wants to give you money, take. it. Buy this stock.

As we have often written, the stock market rarely values stocks fairly. When the mood is optimistic, stocks soar far higher than any reasonable valuation. Analyst have little choice but to continue recommending these overvalued companies, because should they start saying “sell”, they would soon find themselves unemployed.

On the other hand, when the market is negative, stocks get beaten down far lower than than their real value.  We have described this as The Panic Investing Cycle. When such an event happens, follow the advice of Baron Rothschild – “Buy when there is blood in the streets;”

A Gold Producing Company

Lake Shore Gold Corp. (TSX & NYSE: LSG) has recently gone into production and is ramping up its activities, looking to produce 135,000 ozs of gold in 1014 at an average cost of less than $700. LSG is positioned for rapid production growth at low operating costs. The Company has three wholly owned, multi-million ounce gold complexes and two operating mines in the century-old Timmins Gold Camp.

In its press release of May 14/13 when it released its 1st quarter results, the company advised that it sold 26,100 ozs of gold in the 1st quarter this year, and expects to achieve at least 40% production growth in 2013 to between 120,000 and 135,000 ounces of gold. The company has almost $52 million cash  and will be completing its mill expansion this year.

Upon completion of the mill expansion, capex expenditures are expected to be minimal thereafter and the company expects to be net cash positive in the 4th qtr of 2013.

Recent Events

Unlike many others in this sector, Lake Shore Gold has had only positive announcements recently.  It arranged and drew down a $35 million standby line of credit with Sprott, which provided the necessary working capital.. The line of credit @ 9.75%  is due on January 1, 2015.

Late last year LSG discovered a new zone of gold mineralization which increased significantly its reserves – a very positive dvelopment.

LSG’s production costs which were too high, have been decreasing continually reaching $975 /oz, and are expected to drop below $799/ oz by the end of the year. This makes the gold production very profitable, and the increased reserves make the company sustainable over many years.

Only good news.

The Current Stock Price
The current stock price is $0.26 with a total market cap of $110 million, which is ludicrously cheap. It is the opportunity.

In April 2011, this stock was trading at $4.44 which is 15 times the current price.  As the resource sector fell out of favor, LSG fell out of favor. There were only positive developments, yet the stock continued to be punished. When an opportunity such as this presents itself, it should be very profitable to the investor. This could easily be a 10 Bagger.

Lakeshore Gold’s Current Situation

You can’t lightly dismiss a company that is in production, improving efficiency, discovering ever larger amounts of gold in the ground, and producing cash by the bucket. In their May 14/13 press release covering the 1st qtr of 2013, the company committed to a production rate next year of 135,000 ounces gold at a cost below $700 per ounce. At current market prices, this translates to about $700 per ounce profit, and a cash flow next year of in excess of $100 million. This translates to a yearly operating profit of $0.26 per share, or almost equal to the trading price today.

At a most conservative estimate, the trading price should be 6x earnings, or roughly $2.00.

Buy Lake Shore Gold (TSX & NYSE: LSG) $0.28

This company is headed for substantially greater gold production, at a production cost of $700-$800 /oz, and a cash position that will grow dramatically as they pull the gold out of the ground and sell it. in ever increasing amounts.  At today’s price of gold, it is enormously profitable.

The margin of safety is large. The market price of gold could drop in value by half, and this company would still be profitable.

 

We may or may not have positions in securities we name. In making an investment decision consider numerous factors such as portfolio balancing, timing, cash and capital reserves, asset allocation and other. Do your own research. Matters discussed contain forward-looking statements that are subject to risks and uncertainties and actual results may differ materially from any future results, performance or achievements expressed or implied.

Views expressed are opinions and not investment advice. You should retain a licensed professional to guide you and  not rely on the opinions expressed herein. This report is neither a solicitation nor a recommendation to buy or sell securities. We are not a registered investment advisor nor a broker-dealer. The information contained herein is based on sources which we believe reliable but is not guaranteed as being accurate or 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.