The company has a portfolio of predominantly low-cost, long-life operating mines, although it also has a history of operations troubles at its key projects (both operational and developmental).

1H13 Results

NCM’s 1H13 results were disappointing on several fronts. Gold production for the half was 953,000 ounces, down 18% on prior corresponding half.

Cash costs increased 8% on same period in FY12. The poor production results led to revenue falling 28% and underlying profit plummeted 48%.

Guidance downgrade

Late last month, the group downgraded its full year production – its fifth downgrade in the last two years. Gold production was lowered from 2.3 to 2.5 million ounces of gold to 2.0 to 2.15 million ounces.

The company cited operational issues at Lihir and Gosowong as the reason for the downgrade. While the downgrade was not a massive shock given the poor 1H results, it is yet more evidence of management inability to forecasts its own production.

Gold Prices

While the groups poor results have contributed to recent share price weakness, it correlation to the gold price has also contributed.

The above shows the gold price (white line) and NCM share price (yellow line) over the last nine month.

As is shown, the fall in the gold price has dragged on NCM’s share price. With fears of monetary easing-induced hyperinflation are abating, other asset classes such as equities are offering relatively stronger returns.

Outlook

NCM’s 1H13 results showed the effects of both poor production and a falling gold price.

Disappointingly, the group last month downgraded its full year guidance. This downgrade was already from what we would consider low-end guidance and while not a complete surprise it does not leave us with much faith its management’s ability to forecast its own production.

With the flight to stronger returning asset classes likely to continue in the near-term, we see continued weakness for the gold price and as a by-product NCM’s share price.

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Rising cash costs squeezing margins

In late January, KCN revealed a 13.4% slide in 2Q13 gold output relative to the same period a year earlier. Compared to 1Q13, gold output rose slightly by 4%.

Production was affected by the temporary closure of the Chatree North Expansion Plant (Plant 2) and interruptions at Challenger following the establishment of two new mining fronts.

The biggest disappointment with the result was another rise in the group’s cash costs. Cash costs rose 37% from 1Q13 to US$975/oz. However, compared to 2Q12 costs surged 60%.

KCN attributed the cost squeeze to lower ore grades at Chatree and ore sourced from an area of Chatree’s Pit A that was known to have lower recoveries.

The poor 2Q13 production result contributed to a 76% slide in 1H13 net profit to $8.1 million. Revenue was up 10% on-year, however the growth was driven primarily from stronger gold sales. Weaker output from Challenger and a lower realised average gold selling price detracted from the growth in revenue.

Gold prices trending down

The price of gold has weakened noticeably in recent months. Spot gold is trading around 7% below KCN’s 1H13 average realised selling price of US$1676.

The outlook for the precious metal has declined amid signs of weakening physical demand and diminished prospects for further monetary easing. In an example of waning demand, the US Mint sold 62,000 ounces of American Eagle gold coins last month.

This was much lower than the sale of 80,500 ounces in February and 150,000 ounces in January. Holdings in gold-backed exchange-traded funds are also 6.9% weaker in the year-to-date.

Furthermore, with the world economy stabilising, central banks like the US Federal Reserve are less inclined to implement additional monetary easing measures.

In our view these are among the key factors that will handicap gold prices, and by extension, KCN’s revenue growth.

Outlook

KCN stuck to its FY13 gold production guidance of between 200,000 and 220,000 ounces. 1H13 production totalled 90,413 ounces, meaning KCN is relying on stronger 2H13 output numbers in order to meet its guidance. Although Chatree’s Plant 2 is now back online, development at Challenger is expected to continue.

Also, the limited availability of stoping areas at Challenger the company highlighted in its 2Q13 production report indicates difficulties accessing the ore body being mined. Therefore we don’t share KCN’s optimism that full year production guidance will be met.

Moreover, the upward trend in its cash costs is coming at a time when gold prices have been retreating. This is creating pressure on cash margins and will ultimately translate into poor earnings in our view.

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RRL’s flagship asset is the Duketon Gold Project in Kalgoorlie, in WA. The project comprises of 387 leases that cover over 2,030 sqkm of ground. These leases contain three main deposits in Moolart Well, Garden Well and Erliston.

FY12 results

RRL’s only producing mine is the Moolart Well. The group reported June quarterly gold production of 26,228 ounces, at a cash cost of $532 (pre-royalties).

Although cash costs rose slightly from the March quarter’s $519, RRL’s costs were still lower than its major peers due to the higher reserve grade mined and the low-cost nature of its operations.

RRL had guided for FY12 production to be between 95,000 ounces – 105,000 ounces, but beat its own guidance with 105,413 ounces produced. The company reported an FY12 net profit of $74.7 million, which was almost double FY11’s result and came on the back of a 58% jump in gold sales.

Projects with significant potential

The Moolart Well mine is projected to consistently produce around 100,000 ounces of gold a year for at least the next 4 years.

The company began producing from Garden Well earlier this month, and has forecast output from this mine to be between 220,000 240,000 ounces in 2013, at a cash cost of $400 – $450 an ounce.

RRL expects to commence development of the Rosemont Gold Deposit in the coming quarter. Taking into account Garden Well’s output and the development of Rosemont, RRL expects to produce over 400,000 ounces of per annum, significantly higher than FY12’s number.

Outlook

With FY12 now over, FY13 and FY14 earnings expectations will become more prominent in valuation models.

RRL is planning a dramatic increase in production over the coming years, which is likely to translate into a massive increase in earnings and cash flow from FY13.

With Garden Well and Rosemont about to ramp up output, the catalysts are in place for RRL to re-rate to a higher price earnings multiple, which is expected to translate into further share price gains.

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In Laos, PanAust operates the large Phu Kham copper-gold operation, which commenced production of copper-gold concentrate in April 2008. The Ban Houayxai Gold-Silver mine which is also located in Laos commenced commercial production in June 2012.

First half results

PNA reported a first-half net profit of $65.7 million, which was a 5.4% fall on the prior corresponding period. The fall came despite a 1.5% rise in revenue to $306.2 million, with a sharp fall in copper and gold prices to blame for the differential.

On the positive side PNA announced a maiden interim dividend of 3 cents a share, as it wraps up a two-year, US$450 million capital expenditure program.

The company reiterated its full-year production guidance of around 64,000 tons of copper, 135,000 troy ounces of gold and 650,000 ounces of silver.

Growth

As mentioned the group has spent US$450 million on capital expenditure which should hopefully result in further production growth.

PNA recently upgraded certain facilities at its Phu Kham mine and as a result, copper production is expected to rise to between 65,000 tons and 70,000 tons in 2013.

Gold production is also expected to increase by 7,500 ounces. The Ban Houayxai Gold-Silver commenced commercial production in June 2012. The second half is expected to deliver over 65,000oz of gold at a cash cost of approximately US$500/oz after silver credits.

Gold and Copper markets

.

The above two charts show the spot price of gold and copper since the start of July.

Both commodities have moved strongly higher, both boosted by the US announcing further quantitative easing.

China manufacturing data continues to be weak. This was today characterised by the reading of the HSBC’s Flash September Purchasing Managers Index, which was 47.8.

A reading below 50 indicates contraction.

As such we believe that these continued weak numbers will force the Chinese government into action and provide further stimulus, which in turn will see commodity prices continue to strengthen.

Outlook

PNA produced solid 1H results despite the fall in profit which was due to falling commodity prices.

The company is moving into an interesting phase with much of the previous year’s capital expenditure beginning to pay dividends in the production sense.

We also think that the positive momentum surrounding gold will continue over the next few months, providing further support for PNA shares.

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Resolute Mining Announced Intends To Increase Production FY13 By 14%

Resolute Mining Limited explores for, produces and develops gold in Ghana, Mali Queensland and Tanzania.  The Company’s gold exploration projects include Obotan, Syama, Ravenswood and Golden Pride.

Small cap Resolute Mining today announced that intends to increase production in FY13 by 14% to 415,000 ounces of gold.

The group also forecasted a rise in cash to $830 per ounce over the same period.

Its unaudited FY12 results revealed production of 398,452 ounces at a cash cost of approximately $750 per ounce.

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PanAust Commences Ore Processing In Laos

PanAust Limited explores for gold and copper through its exploration projects in Laos and Thailand. The company is listed on the Australian Stock Exchange and is a member of the SP/ASX200.

PanAust announced that it has commenced ore processing at the Ban Houayxai operation in Laos.

PanAust is targeting annual gold production of approximately 100,000 ounces and 700,000 ounces of silver.

Ramp up of production is expected to be rapid and the current estimate for 2012 production is approximately 85,000 ounces at a cash cost of between US$550 and US$600 per ounce after credits for about 200,000 ounces of silver.

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St. Barbara Ltd (ASX:SBM) is a gold exploration and production company.  The Company’s exploration projects include its Southern Cross and Leonora Operations which are located in Western Australia.

ASX Small Cap stock, St Barbara today released production figures for the fourth quarter revealing a production increase of 18% compared to the previous quarter.

The company said in a statement that the increase was due primarily to stronger milled volumes and the higher grade of ore mined.

SBM said exploration drilling will increase in the second half with the exploration budget set to increase by $6 million for the year to $22 million.

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St Barbara (ASX:SBM) is an Australian Small Cap gold producer and explorer.

SBM’s primary assets are its Southern Cross and Leonora operations, both of which are located in Western Australia. The company purchased the Gwalia (WA) mine in 2005, which has now become its main focus.

St Barbara today announced it has established an on-market share buy-back facility to repurchase up to a maximum of 15 million of its ordinary shares.

The buy-back will be conducted over a six month period.

The company stated the buy-back facility will enable it to apply its strong balance sheet and cash position to consolidate the company’s capital base for the benefit of shareholders.

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Saracen Mineral Holdings Ltd (ASX:SAR) is an Australian mid-tier gold producer based in WA.

The company bought its major assets off Sons of Gwalia back in 2006 – when the latter went bankrupt – and has done well to develop the assets and move from an explorer to a producer.

SAR’s key assets are located in the South Laverton mining district, 120km North-East of famed gold mining town Kalgoorlie, in Western Australia. This includes around 200 granted tenements and applications pending spread over 2,500 square kilometres.

Since purchasing these assets, SAR has spent money exploring the tenements and developing the projects to production.

The company completed a Definitive Feasibility Study on the South Laverton gold project in December 2008 and started producing gold in early 2010.

Ramping up

Having started production in April last year, SAR has achieved strong production quite quickly and established itself as an enticing small producer.

The company produced 111,163 ounces of gold in FY11, its first full year of production, at an average cash cost of $738 an ounce.

SAR has forecast production of around 125,000 ounces in FY12 at costs of around $700-$750 an ounce. So far FY12 is off to a solid start, with the company recently releasing its September quarter Activities Statement. Production of 31,790 ounces at cash cost of $730 was right in light with guidance.

By de-watering some of its flooded pits, SAR hopes to ramp up production to over 160,000 ounces a year by 2015.  Management has proven to be conservative and reliable so far, offering some reassurance in what is a speculative sector.

Saracen Mineral Holdings has managed significant upgrades to its gold resources and reserves, presently standing at around 3,300,000oz and 880,000oz respectively.  Most of the reserves are open-pit, which allows for easier and cheaper mining.

The sizeable resources and potential underground mining pave the way for a long mine life, while the company has extensive exploration potential to upgrade this further.

The hunt for Red October

SAR’s has planned to spend $35 million on exploration activities in FY12, a sizeable budget given the size of the company.

The company recently completed a placement, raising $50.2 million and helping the company to end the September quarter with $60.3 million in net cash and no debt. A share purchase plan and subsequent placement have raised a further $15 million since.

Together with cash generated from production (almost $10 million last quarter), SAR will not need to raise significant fresh capital to fund this.

Much of SAR’s exploration efforts will be in exploring its Red October project. The company expects to have completed dewatering the pits shortly, to be followed by underground development work.

Previous drilling results have confirmed the continuity of ore body at Red October and further exploration efforts could lead to significant resource upgrades relatively quickly.

Production from Red October is expected to commence in FY12, but potential major exploration success could provide a major share catalyst before then.

Outlook

SAR only started gold production just over 18 months ago but is already generating output of around 125,000 ounces a year.

Incremental production upgrades could come in the next few years, but the significant upside potential comes from the development of its Red October operation.

While SAR offers significant exploration upside, its existing production provides extra protection, and suggests that the market could re-rate the stock and push SAR shares much higher than current levels.

SAR is a defiantly a stock to watch.

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Azimuth Resources (ASX:AZH) is a junior gold and uranium explorer, with projects based in Guyana and South America.

The group holds approximately 8000km² of gold tenements in Guyana, and its main asset is the West Omai gold project, which it is currently exploring.

AZH’s other interests are the East Omai gold project, the Amakura uranium project, and the Pandanus West uranium project in Australia.

The company is an exciting prospect that has produced encouraging drilling results at West Omai. There is growing hope that the group’s maiden resource discovery will be significant enough to help underpin the start of production.

Go Guyana

The West Omai project is AZH’s flagship project, and which may contain the discovery of significant gold resources.

West Omai is part of the same corridor that hosts the Omai gold mine, which is the biggest gold mine in South America, having so far produced 3.7 million ounces of gold.

Azimuth Resources is expected to release a maiden resource estimate from the project sometime this quarter.

Given West Omai’s proximity to the Omai gold mine and the encouraging drilling results thus far, a significant resource discovery could be on the cards.

Gold shoots higher

Being an explorer, AZH is tightly leveraged to gold prices.

Although gold was sold-off heavily in September, the precious metal has bounced back strongly in recent weeks amid global economic uncertainty.

The spot price of gold is back above US$1750 an ounce after crashing to just above US$1500 in late September.

Europe’s debt crisis and the potential for another round of bond purchases by the Fed is likely to lure more nervous investors back into gold, which is likely to support prices further.

Such an outcome would be very beneficial for AZH.

Balanced out

AZH completed a $19.4 million capital raising on 31 October, giving it the balance sheet strength to pursue its Guyana exploration program well into 2012.

The raising has come at an ideal time for AZH, which has smartly taken advantage of its strong share price to shore up its finances.

The group also announced plans in April 2011 to list on the Toronto Stock Exchange.

The listing is expected to boost AZH’s global profile, which will come in handy when the group looks at future capital raisings.

Outlook

AZH an exciting prospect that has produced encouraging drilling results at its West Omai project.

The group is expected to release a maiden resource estimate from the project sometime this quarter, and there is hope the estimate will be significant enough to help underpin the start of production.

AZH’s fortunes are closely linked to the price of gold, and with the precious metal on track for continued gains, we believe this will translate into continued strength for AZH’s share price.

This is one of the hot stocks of the year, rising from 25 cent in June to currently be trading beyond 50 cents.

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