David Goguen: Finding Real Value in the Ground

The Gold Report: When you spoke with The Gold Report last November, you said you were looking for undervalued plays. Valued by what measure? The value unrecognized by the Street, or value that has yet to be developed and driven out of the ground in the form of ounces?

David Goguen: I think it's a combination of both of those things. It will be defined differently depending what category you're examining. In the case of advanced explorers, it could be a rapidly growing resource where the full scale and potential are not yet fully recognized in the marketplace. For emerging producers, value will be found very classically in that time period when the company is two-thirds of the way through a project build and not generating a lot of catalyst-rich news. That results in a bit of a sleepy period when oftentimes we see the share price drift to levels that represent very good value.

TGR: Gold has pulled back a bit. Are you currently telling your clientele this is a good time to buy gold mining stocks?

DG: Absolutely. We feel the gold price is going to be very well supported above the $1,100/oz. level, and we feel that the margins being afforded to gold producers in this $1,200–$1,300 gold environment have not been properly reflected in the valuations for these companies. There's still a sense that the gold price isn't sustainable at these levels, so there's a hesitation in the valuations being afforded to these junior producers. Therefore, they're trading at 3x–5x cash flow when, in fact, higher valuations are merited. These juniors are generating strong cash flow. (more)