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Small caps on golden roads

Today small-cap gold companies have rebounded with some good news after volatile trading on the S&P/ASX 200 Index (^AXJO)(XJO.AX) last week.

Dropping gold prices hasn’t been enough to deter good results from some small-cap Australian gold producers like PanTerra Gold Limited (ASX: PGI) and Gold Road Resources Limited (ASX: GOR). Last week, it was reported that gold stocks were being dumped from investor portfolios as the gold bubble looked like it was finally going to burst. As companies such as Newcrest Mining Limited (ASX: NCM), Silver Lake Resources Limited (ASX: SLR) and Lynas Corporation Limited (ASX: LYC) all took a beating, these companies have remained focused on becoming bigger and better producers of the commodity that so many value as a “safe investment”.

PanTerra, currently trading at $0.085 has today given shareholders an update on its Las Lagunas gold/silver project in the Dominican Republic. With a market capital of $62 million, the company is pleased to report that the project will be running at capacity. From this week on, it will be producing between US$3.5 million and US$4.0 million of income for April and is targeting US$8.0 million per month after June of this year. The costs associated with running the plant have stabilised at US$2.5 million per month. Dropping 49% over the past 12 months, shareholders may finally have something to smile about.

For the second time since 2011, Gold Road Resources Limited has upgraded its Central Bore projects resource output, reporting a 32% increase of the combined projects capability. Incorporating the Imperial Shoot, the Senate and Justinian projects, the company has reported a 134% increase in measured category and 407% increase in inferred category for resource output. Opening this morning at $0.079 with a market cap of $35 million, this company has room to move, but investors should be cautious and see whether this company can deliver on its extraction of the precious metal. However, dropping 64.5% in the past 12 months, the turning point for this small cap might be right around the corner.

An emerging producer with outstanding growth potential has today announced that it plans to merge with Polymetals Mining Limited (ASX: PLY) to create a diversified Australian gold company. Southern Cross Goldfields Limited (ASX: SXG) has agreed to merge via Polymetals’ scheme of arrangement which would see shareholders of Southern Cross offer 11 SXG shares for 1 PLY share. The combined mineral resources of the company will expand to 1.7m oz3 gold and ore reserves totalling 254,000 oz3 gold. With a combined pro-forma market capitalisation of ~$30 million and current combined cash of ~$13 million, the company believes it will be strongly placed to fund growth via development and exploration.

Foolish takeaway

After a tough week on share markets for gold stocks, it will be interesting to see how investors respond to the bruised companies as many are selling for a premium. It’s always important to incorporate small-caps into your portfolio so you don’t miss “the next big thing”, but like always, only risk what you can afford to lose.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz does not own shares in any of the mentioned companies.

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