One of the easiest ways to invest in gold is to buy shares in gold mining companies. Shares are easy to buy, hold and trade, and often outperform the gold price due to the gearing effect of a rising gold price on existing and prospective reserves. Gold miners with attractive potential include:
Orosur Mining (OMI)
South America-focused Orosur Mining currently produces around 55,000 ounces of gold a year from the San Gregorio mine in Uruguay and has a number of growth projects in Uruguay and Chile. The mine used to produce 100,000 ounces a year but is nearing the end of its life in its current form. Nevertheless, it provides valuable cash flow, albeit at relatively high cost per ounce of gold produced.
Nearby is the Arenal Deeps deposit, the development of which would reduce mining costs, increase production and extend the life of the operation, all for a moderate capital investment of some $8m (£5m). However, Orosur's biggest growth potential is the large, late-stage Pantanillo project in Chile, at which the company recently announced a maiden resource of 1.05m ounces (1m ounces is the benchmark resource for Alternative Investment Market (Aim)-traded gold miners). Drilling has so far concentrated on the shallower zones of the deposit although there remains significant exploration upside in deeper zones that analysts believe could take the resource to well over 2m ounces.
Chaarat Gold (CGH)
Chaarat Gold has over 4m ounces of resource at its project in northwestern Kyrgyzstan and is hoping to finish a pre-feasibility report by the end of this year to determine the optimum route to [underground] production. The company recently identified potential for [high-grade,] low-cost open pit mining as a precursor to going underground. This could be in small-scale production and provide valuable early cash flow next year, before operations start at the main project in 2012.
Chaarat is targeting production of 200,000 ounces of gold a year, which would make it one of the largest producers on Aim (100,000 ounces a year is the benchmark for Aim gold miners). The work programme remains well financed following a £5.6m subscription by China Nonferrous Metals International Mining Co.
Mariana Resources (MARL)
Mariana Resources has a portfolio of gold and silver projects in Argentina and Chile, including the key discovery at Las Calandrias in Santa Cruz Province in southern Argentina. Drilling from late 2009 intersected wide zones of bulk tonnage gold mineralisation including some very high gold and silver grades.
Exploration to date has focused on just two domes of mineralisation although preliminary indications suggest that several other domes may be equally prospective. Mariana remains at an early stage in its drilling although a £6.75m fund raising in June finances a 10,000m drilling programme to improve the definition of the discoveries and other targets at Calandrias. One of the main objectives is to achieve a maiden resource in the first quarter of next year. The company is also planning a dual listing on Canada's TSX before the end of this year to capitalise on North American investor interest in Argentina's Deseado Massif province.
Solomon Gold (SOLG)
Solomon Gold has a number of projects in the Pacific Rim of Fire near some sizeable gold mines including Lihir (40m ounces) and Grasberg (160m ounces). Indeed, Solomon's Fauro Island project lies just 82km southeast of the large mine at Bougainville, although encouraging first assay results suggest the closest geological comparison may be Lihir Island to the northwest.
The first 58 of 215 test samples indicate significant gold mineralisation at very high grades up to 173 grammes per tonne, in addition to significant molybdenum, silver and copper. Further assay results are awaited in the coming weeks. Data from ground and air-based surveys will help identify and prioritise drill targets and drilling is planned to commence before the end of 2010.
Vatukoula Gold Mines (VGM)
Vatukoula's mine in Fiji has produced over 7m ounces of gold during its 70-year history and still has a resource of 5m ounces at a good grade of 10 grammes per tonne. Production in the year to August of 59,658 ounces of gold gives management confidence that it will achieve its 100,000 ounces of gold per year target next year, and moreover will reach this annualised rate next March.
Financial performance has been constrained by high operating costs, mostly power, which accounts for around 40 per cent of the total and is mostly expensive, imported diesel. The company is investigating the potential of building its own power station, which could reduce costs from around $800 per ounce to closer to the industry standard of $550-600 per ounce. £7.4m raised will finance further exploration - surface and underground drilling is planned to begin in early 2011 - and completion of the power plant feasibility study.
