Richmont, DRD Gold Surge on Higher Gold Price, Dynacor Remains Undervalued

Bookmark and Share     February 5, 2016

As gold prices bottomed at $1,050 and quickly bounced back to $1,200, most of our recommended gold producers with key operations outside of the US have outperformed the markets:

DRD Gold (DRD): +100%
Richmont Mines (RIC): +30%
Gold: +11%
Silver: +7%
Dynacor Gold Mines (DNGDF): 0%
S&P 500: -6%
Dow: -7%
Nasdaq: -13%

The strength of both gold and the US Dollar has made producing gold much more profitable in Canada and South Africa, where Richmont Gold (RIC) and DRD Gold (DRD) operate respectively. After a year of increased production and earnings, Richmont's growth is subsiding and its market cap is trading at 2 times revenue, which is much higher than industry average. DRD's ramped up production and margins are slowing as well, and its market cap is trading above parity with revenue, which is about industry average. After 52-week gains of 30% and 48% respectively, RIC and DRD are still good investments but might underperform other gold stocks moving forward.

There are many smaller producers operating in non-Dollar terms whose stock prices have yet to break out. And only one is on the verge of doubling production at higher profit margins: Dynacor Gold Mines (DNGDF). To top it off, Dynacor's market cap trades closer to half of revenue at present.

The company is in the final stages of completing construction on its long-awaited Veta Dora ore processing plant in Chala, Peru. Unlike its present Huanca plant, Veta Dora is on the national power grid, making energy costs substantially lower. The new plant will also produce up to 300 tpd initially, which is more than the present plant's 250 tpd output. Once Veta Dora goes into operation in Q2 2016, the company's revenue and earnings will rise significantly, presenting investors with an unmatched opportunity in the gold production industry today.

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