In the years before the financial crisis gold and silver were following each-other in every up and down-turn, and silver would usually do everything in overdrive. With the big drop of gold this fall, silver naturally fell as well, but much harder. And since, silver has not been able to gain a standing in relation to gold that it had earlier. Through the bull-market in precious metals, silver has from time to time been lagging and there seems to have been doubts about its 'precious' status, but then when gold started going up substantially, silver would quickly follow. Silver has (just like gold) been used as money in the past and although its uses today are largely industrial I doubt that it wouldn't hold somewhat steady with gold even if industrial demand fell, just based on its historic relation to gold. The supply and demand picture for silver and gold is very different, where silver has a very small investment demand (regarded in % of demand), but about 25% of demand from jewellery. Gold on the other hand has demand of ~68% jewellery and investment demand ~19% and the rest for industrial. One could regard jewellery as investments, but that isn't entirely the truth, and in this comparison it almost looks like silver comes out as a gold-equal, because if financial chaos drives people to precious metal investments you might see a somewhat equal increase in both silver and gold, but then as people get poorer all over the world jewellery demand could go down (hurting gold more) and at the same time you might loose industrial demand for both gold and silver (hurting silver more) - this would leave both metals in a fairly equal position for investment-driven appreciation. It is a fact that investment demand for both silver and gold has been growing strongly, and perhaps somewhat stronger for gold - since it is the best exposed of the two. But I beleive we will see a return of the same scenario we've had many times over in the past couple of years - gold takes a dive and silver takes a much stronger dive (which happened this fall) - people are scared and more so by silver than gold, so gold appreciates faster than silver after the crash, but as people feel more safe they start pouring into silver again into the next crazy rally in which silver is able to appreciate more than gold. So basically we end up with the same driving factors for silver and gold, but because silver is historically undervalued (and recently crash-relatedly undervalued) in comparison to gold I think it deserves some extra attention.

A few posts back I presented Arian Silver which is just getting ready to start up operations, and of course there are always problems with the start-up of a mine, so I figured it would be good to take a quick look at a silver-miner that already has some good production and is growing strongly.

Endeavour Silver is just like Arian located in Mexico, and while there is a lot of violence in the country now, I don't think it will hurt the mining industry too much since this is a war between criminals and the government and not between the people and the government.
Quick numbers: Working capital ~$15M, Debt ~$11M, mcap ~$60M. Reserves/resources 42M Oz silver and some gold.
Endeavour has two producing mines which are both high grade silver with gold. The expansion potential would best be described as huge for both. Production in 2008 was 2.3M Oz silver (up 9%) and the company is aiming at an increase to 5-10M Oz per year in only 2 years time; for 2009 they expect production to increase 20% because of recent investments in the mines. Also, for 2009 there is expected a 10.000 Oz gold by-product. Production cost for the last quarter was down to ~$7.50 per Oz, mostly because of the weak peso.
The company has two really good looking exploration-projects and they are currently looking to make more acquistions of producing mines. Because of large investments in the mines and in exploration Endeavour has not seen a positive net profit yet, but considering the low cash-cost the net profit should be good as production ramps up and investment needs for the mines decreases.

I know this review of Endeavour Silver was really short, but I think the picture is pretty clear. If you look at the revenue of production in 2009 (almost 3M Oz + gold) and discount the expenditure of exploration and other investments, there would be a profit of ~$28M based on the latest cash-cost and the current silver/gold price. The mines look like they're going to be in production for a long time and with all the expansion plans, an mcap of $60M is not looking too expensive, especially if silver starts catching up to gold.

I realized from my China-post that I had kind of forgot about alternative energy lately, what with the financial crisis and all. I think it is still a market that should be overviewed, not only because of the long-term problems of energy sustainability, but also because the strive for clean energy is very much alive, despite the economic worries. I beleive that today there are a couple of really good and sustainable clean energy alternatives; wind, water, thermal and solar power. I still have a few doubts about wave-power... but, economically I can't see how these alternatives could ever really go out of fashion - if it was economically feasable to build wind-mills in the harsh economic climate of 500 years ago, then it will be so 500 years from now as well. When alternative energy comes up people usually point to how much cheaper nuclear-energy is, and they're right, it is much cheaper. But we all know it isn't sustainable and if it is economically sound to produce alternative energy today to make the transition easier when uranium starts running out, then why not. The four alternatives I mentioned above are all economically sound today and were actually so even before energy prices started rising a few years ago. Obviously water is the best alternative, second to it I think wind is the best choice (unless you're living in Iceland with heat boiling up from the ground all over the place). So, I decided to take a look at a smaller wind-power company that is in a good position to grow, and I think that AAE fits that position perfectly.

AAE has just opened up a production facility for turbines in Quebec/Canada and so far they've delivered two turbines. The technology used is one acquired from Germany and is licensed for unlimited use in North America, the UK and France. The business-model is very simple; instead of focusing on huge wind-parks like many of the larger players do, AAE will focus on smaller parks or just deliveries of one turbine at a time, with turbine-sizes of 1-2MW. This model will make margins thinner than for large producers, but there's no reason to doubt it's profitability.
They have an agreement to deliver 61 turbines in 2010 for Mont Louis Wind, and they have agreements of one or two single-turbine deliveries. So far there have been a couple of public offerings and private placements of equity financing and it looks likely that there will be further dilution until 2010, when some real money starts rolling in.

Today AAE has an mcap of ~CDN$23M and basically no debt. They already have a good bunch of ordered turbines and although these things are impossible to predict I think that orders will keep on coming. The market for wind-power is still growing and it is still a seller's market. Even if the economic crisis could take a good bite out of this business, AAE could actually benefit as they are focusing on smaller scale projects, which may become more attractive as funds shrink in all sectors. At least AAE has it's operation pretty much secured until the end of 2010, and with that considered they have a lot of time to try and get new orders.
Let's assume that AAE is able to sell 50 turbines a year, and with a net profit of CDN$0.3M per turbine, then the 23M mcap isn't looking too expensive. I could be way off in my guesstimate here, but a alot will really be uncertain until some real money starts moving in this company. But on the whole they are in a really good position and if they land some more larger orders then they should be set to start climbing.

AGQ is another junior (soon to be) mining company. For those of you who are familiar with the story of Novagold, you'll see that AGQ has a lot of similarities. Novagold has huge resources of metals (mostly precious), whereas AGQ has a - not exactly huge - but large resource. Novagold has a mine that was in production recently and probably will be again soon - and so does AGQ. I'm not 100% on these numbers, but last time I looked I think that Novagold had something close to 30M ounces of gold, and an mcap of CDN$250-300M. AGQ has about 80M ounces of silver equivalent and 2.55M ounces gold (in total ~4M ounces of gold equivalent), and an mcap of only CDN$8M. Although the numbers for Novagold are not 100%, I think this relation is pretty striking: for AGQ to be on a similar valuation as Novagold, they would have to be valued almost ten times higher. Of course one could easily argue that Novagold is grossly undervalued, which would make AGQ ridiculously undervalued. Another thing that speaks in favor of AGQ in relation to Novagold is the fact that they still do not have any large loans, which is something that Novagold has.

So, let's look at the projects of AGQ: There are three main projects; the first is the San Jose project, which was a producing mine until 2001 - which means that pretty much all the infrastructure is in place already. San Jose holds about 80M ounces of silver eq., with high-grade silver along with zinc and lead. The property has a huge potential to expand, and ongoing exploration keeps showing up great results. The mine is set to re-start production in 4Q 2009.

The second project is named Calicato. It does not yet have a determined resource, but is considered to have potential for over 25M ounces of silver eq. The average grade so far has been 200-250g/t silver and 0.5-1g/t gold, along a vein-system of (in some cases) over 4m width.

The third project is named Tepal, which holds a 2.55M ounces gold eq. resource. It's a copper-gold-silver porphyry project. It has seen exploration since the 70's and is still open to further exploration in many large areas. The average grades are so far 0.47g/t gold and 0.24% for copper, whereas the silver has a very marginal importance.

I know some of you might think that the comparison with Novagold was a little out of place - after all Novagold has projects or stakes in projects that are huge and with much better grades than AGQ - but the most important thing today is to get some money flowing, and in that case they are very similar. Both of them are going to have trouble getting money to keep things up until they can cover their expenses by an operation (I also talked about this in the Oroandes post). But both Novagold and AGQ have some great projects and by the looks so far, they are still able to raise money.

By just looking at the valuation of the peers of AGQ, it does look very undervalued. It is only a few million dollars away from the same valuation as Oroandes and other junior explorers who are just valued on the hope of big findings - AGQ has already got big resources and an operation that is about to start up in a couple of months ... and that should count for something.

Ok, todays stock-review is going to be short. Since I wrote about Millicom I've been a little curious if there are other companies like it, and possibly in better positions. Well, there are:
MTN is another company in the mobile-telephony business which is very strongly exposed to the african markets. Really all they have is exposition to Africa, and to a small degree, the middle-east. And as you might remember from my Millicom-exposé, Africa had the absolute best growth-rates of all the places where Millicom was active (~100%). In comparison of the two, Millicom has a p/e of ~10, and MTN has almost 14; the revenue-growth of Millicom is 29%, and MTN 35% - this compares Millicom for full year 2008 and MTN for only first half of 2008; MTN will release full year results on March 12.
The reasons for Millicom's lower valuation I suppose would be because of it's large dependence on the much more mature markets of Latin-America. MTN practically dominates african markets and are present in most countries there. The greatest revenues come from Nigeria and South Africa with 30% and 40% respectively. As is well-known, the economies of these two countries have been driven pretty strongly by high prices of oil and metals, but they are still showing better growth than Latin America (between 06-07 Nigeria had growth of ~40% and SA had ~18%).
We're all aware of the great instability that has plagued Africa for many years, and obviously this is very problematic. But if you consider the great growth and the great potential for continued growth and the very large number of countries where MTN is active, political problems might just represent minor bumps. Because of the great instability of Africa in the past it might just, oddly enough, represent the most stable place to be in right now and for a few years ahead - especially in a strongly growing sector like telecommunications. I might add that the middle-eastern countries where MTN is active also show very strong growth, like Iran's 485%! Don't worry - I'm not going to make some lame bomb-Iran joke...!
In conclusion, I would personally prefer MTN to Millicom, but only by a thin margin - african instability still makes me plenty nervous, but so does 'instability' of financial chaos...
(edit: Odd coincidence, Millicom had a minor crash today as they announced a change in management. That thin margin might just have switched in Millicom's favor.)

Swedish culture:

Unless you haven't guessed it already I have kind of a "thing" for small gold-mining companies that are just starting up operations. I guess it's no big secret that there's alot of value in this particular area these days. If you want to make money off stocks in this environment, it has to be precious metals, possibly energy, gems like Millicom or stocks that have completely crashed like GM (the stock actually did a nice 50% bounce after my post... good coincidence). Anyway, here's another nice looking junior gold-miner:

Quick numbers - mcap ~$24M (USD, not CDN), working capital $4.2M, no debt. By the looks so far, there appears to be about a 10% net profit margin from gold sold.

GOZ is currently only active in Sweden where they have three main projects. GOZ's only operation is the Bjorkdal-mine which has been running since 1988 and which has produced about 1M ounces. Gold is mainly produced from open-pit, but an under-ground operation is starting up which will increase production from 28,000 to 50,000 ounces in 2009. Average cash cost per ounce is today slightly north of $500 - about $540, and is expected to slowly head lower. Open pit has avg. grades of 1.65-1.83g/t and inferred and indicated resource is about 160,000 ounces whereas underground has 4.72-5,65g/t and a total resource of 145,000 ounces; then there is a very low-grade stock-pile resource at 0.65g/t which holds ~40,000 ounces. That pretty much guarantees an operation of four years. The bjorkdal-mine is open at depth and there are large unexplored or underexplored properties in the area, most notably the Ronnberget property just next to the mine, which has shown drill intersections of 6m with 180g/t. Interesting to note is that the bjorkdal-area has a small resource of tellurium (a metal more rare than platinum), and it is being reviewed if this should also be extracted along with the gold, however the price of tellurium is not particularly high, although one might think so considering its rarity. Tellurium sure is purty though!

The other project of GOZ is Norrliden, which is 90% owned by GOZ and 10% by IGE Nordic. This is a project that has seen exploration for almost 50 years and which today holds a fairly large resource (Ind+inf: ~2,400,000 tonnes) of gold (0.40-0.63g/t), silver(31-51g/t), zinc (1.87-3.54%), lead (0.19-0.36%) and copper (0.72-0.74%). It is envisioned that ore will be mined from this location and transported to a nearby processing-plant owned by another company, thereby making it a very low-cost operation to start up.

So, if GOZ sells 50,000 ounces of gold in 2009, at todays price ($940), then they would make $47M, and if the above mentioned profit-margin stays about the same you would have $4,7M net profits. That gives us a p/e of only 5.2! That's really good for a company that's actually growing. And as the cash-cost will go down, the margins will improve (if the price of gold stays up). Not only is GOZ making lots of money, they also have lots of gold in the ground along with very bright potentials. Even if gold wouldn't continue to rise, I'd say GOZ is a great stock to buy.