Despite our desire to hold 7-9% of most portfolios in good quality gold shares as an offset to excessive monetary growth, a paper bid from Yamana and Northern Orion Resources resulted in the sale after a decent run; we always suspect paper bids, preferring cash. The proceeds are being invested in other gold companies.
Meridian Gold is a Canadian, US listed gold miner whose principal operations are in Chile but who also has development and exploration interests elsewhere in South America and in Nevada (in a JV with Barrick). The company is un-hedged and its main mine in Chile is one of the lowest cost producers in the world, with significant silver and zinc by-products. This mine has significant expansion potential which the company is actively aiming to exploit, and we expect reserve and resource upgrades in the coming 6 months. Elsewhere the company spent $100m in July on another mine in Chile - the value of this is not yet incorporated into the share price as the company has not yet announced its reserve and resource estimates to the market. The company's strong development track record suggests there will be positive risks to the company's valuation from extended drilling at these two mines in Chile, plus there are other exploration projects ongoing elsewhere which represent potential upside when results are announced in 2007. Overall, a large-sized producer with a strong development pipeline and positive catalysts in the coming 6 months. Being un-hedged it is highly geared to the gold price, and based on our 2007 gold price assumption of $650/oz we see sufficient upside value to make this a BUY.
| Sedol |
Type |
Price |
Date |
| 2424318 |
Sell |
USD 29.355 |
25/07/2007 |
| 2424318 |
Buy |
USD 29.043 |
22/11/2006 |
| 2424318 |
Buy |
USD 28.139 |
16/11/2006 |
|
