Gold! Gold! Gold! Gold!

Interesting to see Wellington Management Company taking a large chunk of CGA Mining ASX: CGX today.

Wellington Management Company with approximately US$544 billion in client assets under management, Wellington Management serves as an investment advisor to more than 1,800 institutions located in over 40 countries.

Not a bad vote of confidence.

Interesting to see the state of play between the DX (USD : Basket of currencies) and Gold and Silver. The Marketclub guys usually give a pretty good analysis.

CGA has announced a marked increase in gold output and markedly increased profitability from 2009 - 2010 from their ^64% owned Philippines, Masbate mine. Total revenue for CGA was $US158 million, up from $US2.3 million a year earlier, with cash flows before taxes at $US75.2 million. CGA has a market cap ~AUD$870m and cash (June)>AUD$100m
Cash cost per Oz = $580. Resource of >7m Ozs with exploration upside and is targeting production of around 100,000 ozs for 2010 and possible upside to 200,000 per annum in 20011.

The company has also reported high grade drilling results from their 100% owned Nigerian, Segilola project where a drill indicated gold mineralisation zone has been shown to exist for 950m along strike and to 150m in depth. The drilling to date suggests a grade in excess of 5g/t will be available in any future operations.

So a very strong cash balance a mid to low cash per oz price a relatively low market cap and the prospect of a marked increase in price of gold sales achieved plus a large and ongoing increase in gold produced all seems to add up to an extraordinary opportunity… either as a long term profit maker or takeover target.

See www.australian-shares.com/mining/CGX for a summary and links.

History Says Silver Is Cheap
Posted by Gabriel Wisdom

“If the price ratio between [gold and silver] were to revert back to it’s historical average, then silver prices would outperform gold by more than 2 to 1. In fact, the physical ratio of silver to gold in the earth’s crust is 16 to 1. During the inflationary 1970’s, the ratio between gold and silver prices was at exactly 16:1…mirroring the proportions in which the two metals occur in nature.”

–The Little Book of Commodity Investing, by John Stephenson (Wiley)

With gold currently trading around $1250 per ounce, and silver just above $19, the current ratio of gold’s price to silver’s price appears skewed. One ounce of gold presently buys 65 ounces of silver, so if balance is restored based on the physical ratio of silver to gold in the earth’s crust (16:1), an ounce of silver should be trading near $80.

While silver has many of the same investment attributes as gold, it enjoys the added advantage of industrial demand. And as a currency alternative, silver is more practical. It’s been used as a currency, most notably by the United Kingdom (pound sterling). The French word for money is argent, or silver. In fact, the United States and Great Britain were both on a silver standard up until the 1800’s.

History does have a way of repeating itself, so perhaps our papered money modern world will rediscover silver. Meanwhile, industrial demand continues to grow for silver. Every day another 200 thousand souls are born into our world. The mature and emerging markets demand for industrial metals should continue to expand, and silver enjoys the added benefit of having investment appeal. While not a Fallen Angel in the formal sense, it’s depressed price relative to the growing fundamental case for silver makes it worth considering. I like the iShares Silver Trust ETF at or below $20. Given the exchange traded liquidity and low overall expenses, we view SLV as an efficient way for investors to own exposure to the price of silver.

Literally a wall of commentary in the Australian and Canadian press over the erupting bidding war over Andean Resources ASX: AND TSX: AND. AND soared somewhere between 30 - 40% depending on whether you are looking at the close of the ASX or the bid put in by Goldcorp.

AND has the world’s cheapest production costs predicted and a lot of exploration upside. See earlier posts on AND on this Australian Gold Blog.

What a lovely time to have a holding….

AND was Australia’s second largest by Mkt Cap gold company following the successful merger of Lhir (:LGL) and Newcrest (NCM.)

Whilst I haven’t done the full research this leaves KCN with a market cap of $1,066b as our second largest gold play by mkt cap in now what is a rapidly shrinking field.

Very nice to see one of my long term golds doing so well today… looks like exciting times for AND Australia’s second largest by market cap gold company.

VANCOUVER, BC - Eldorado Gold Corporation (”Eldorado” the “Company” or “we”) today confirmed it has approached the Board of Directors of Andean Resources Limited (“Andean”) with a proposal to combine the two companies, thus creating the world’s fastest growing and lowest cost gold producer.
Andean is a dual listed company (TSX: AND) (ASX: AND) whose main asset is the Cerro Negro Gold Project (“Cerro Negro”) in the southern province of Santa Cruz in Argentina. Cerro Negro is an epithermal gold deposit at feasibility study stage that currently contains 2.1 million oz of gold and 20.6 million oz of silver in Probable Reserves.
The proposal put to the Andean Board was for a share exchange transaction at a fixed exchange ratio of 0.310 of an Eldorado common share for each Andean ordinary share, through a friendly transaction supported by a majority of the Andean Directors (the “Proposal”).

Eldorado believes that the Proposal is extremely compelling for all Andean shareholders and represents a fully valued offer for Andean. Based on the closing price of an Eldorado share on the Toronto Stock Exchange (“TSX”) on August 30th, 2010, the written Proposal, dated August 30th, 2010, followed an earlier initial approach to Andean on August 18th, 2010, and valued Andean at Cdn$6.36 per share, representing:

 A premium of 61.9% to the Andean 20 day volume weighted average price on the TSX to August 30th, 2010.
 A premium of 89.9% to the Andean recently completed equity financing, which was priced by the Board of Andean at Cdn$3.35 per share.

The Proposal would result in Andean shareholders owning approximately 24% of the combined company on a fully diluted basis, based on reported issued capital of each company as of August 30th, 2010.

You can see several posts re AND further down the page.