The gold price has eased about 8% since the end of 2003, but gold stocks have generally fallen much further. On a market capitalisation weighted average, the world’s leading gold and silver stocks have lost a fifth of their value; a little more if you factor in relatively modest interim dilution. In terms of valuations, the rough-and-ready measure of market cap per ounce of proven and probable reserves has plunged from a peak of nearly $180 to a low of $119 this year. It is trading back up at $129/oz which is one of the highest levels in the past six weeks. That price remains cheap given the gold price though with past ratios suggesting that at current metal prices a value of $140/oz and higher is more appropriate.

Gold and silver stocks are either cheap or suffering premonitions of more pain to come. Haywood Securities analyst, Kerry Smith, notes that the volatility has also spooked some investors who have been selling into any strength. They probably won’t buy without a return of last year’s steady gain in the gold price.

Of 80 global gold and silver stocks that were capitalised at more than $100 million when the New Year rolled in, just 10 have enjoyed rising or flat stock prices. The number of stocks in that market value category has been reduced by a fifth to just 63.

It’s not quite the half-year mark, but in view of consensus forecasts for a quiet period through to the end of our Summer, it’s reasonably safe to assume that these stocks won’t be dislodged from their performance perches before July arrives:

GAMMON LAKE RESOURCES [TSX:GAM | AMEX: GRS] +44%
Bullish is an understatement when you’re talking about Gammon Lake with Fred George. The company President and Chief Executive Officer has stuck his neck out a lot further more often than his rivals, but he has so far managed to bring home the bacon on each occasion.

The stock blew through its own mini bubble that lasted from mid-March to early April when there was a heady climb from just over $5 a share in New York, to over $7.50. That has worked itself out and the stock has been advancing again toward $7. Volumes are obviously lower than in the run-up, but the average is significantly higher than it was earlier this year. The technical chart also looks strong.

Driving the recent performance has been Gammon’s exploration results from the Ocampo project. Those results have been very promising with monstrous intersections returned as well as new structures discovered. The company is in the process of preparing a new resource estimate that will underpin a feasibility study for planned production in 2005. The envisioned combined open-pit and underground mine is slated to produce 300,000 gold equivalent ounces a year once it is running at full capacity.

Gammon has eleven drill rigs turning around the clock at Ocampo, and George is adamant that the target of 6 million ounces of gold-equivalent resources in all categories will be easily reached if not surpassed, likely boosted by an improvement in grade. A reserve of 2 million ounces is expected which would provide a satisfactory mine life for a company at this development stage.

Some negatives to note: a) the final feasibility study is a month late by the company’s own timeline. Mill construction was scheduled for this summer. The current market is not taking kindly to surprises after the problems with Cumberland and Gabriel; b) the high ratio of silver to gold, 41:59, requires co-product or equivalent ounce co-product accounting rather than the by-product method. If the by-product method is used, reported cash costs will be lower than they really are.

The big plus is that Gammon has the full support of BMO Nesbitt-Burns which has raised nearly $100 million for it and its subsidiary, Mexgold.

WESTERN SILVER [TSX:WTC | AMEX: WTZ] +24%

Yet another stock that has done very well from an American Stock Exchange listing and one of Mineweb’s picks from late last year. Investors had a perfect buying opportunity in early May when the spike in the silver price came to a sticky end, causing a considerable shakeout that took the stock back to January levels.

Since then it has been a roller coaster moving from $5 to nearly $7.50, back to $5.50 and now running back toward $7 a share. Moving Average Convergence Divergence (MACD) has been a reliable tool to pick turning points in the stock. You can buy gold online and open an gold backed IRA here.

Western Silver continues to progress its Peñasquito silver, gold, zinc and lead property in central Mexico. A recent pre-feasibility study shows a very satisfactory after-tax IRR of 15.3% using conservative pricing of $5.50 per ounce of silver, $350 per ounce of gold, $0.30 per pound of lead and $0.45 per pound of zinc. At current metal prices, the post-tax IRR would be around 20%. You can read about it in this precious metal individual retirement accounts article.

Driving the WTZ price though is the prospect of a shallow, higher grade starter zone at the Peñasco zone. That could add resources and ultimately pay for the development of Chile Colorado, which will require a lot of stripping, thereby substantially enhancing the overall project economics. Overall, there are lots of other mineralized zones and inferred resources that could eventually translate into a significant reserve uplift.

Orion Securities has recently initiated coverage on WTZ.

CELTIC RESOURCES [AIM:CER] +22%

We noted earlier this year that Celtic Resources was one of the cheapest stocks on the matchbox valuation method, even if you savagely discounted its FSU credentials. The stock has suffered some setback since then, falling from $23/oz of reserves to just $17/oz, which makes the stock the third cheapest on our global watchlist.

The low valuation has a lot to do with uncertainty surrounding a deal with Russia’s aluminium giant, IG Alrosa. The intention is for Celtic to take full control of the Nezhdaninskoye gold and silver joint venture in Yakutia with IGA taking a stake in the Irish domiciled miner.

The rationalisation matches the strategy employed by fellow AIM listing, Peter Hambro Mining [POG] to secure its assets. At the same time, Celtic is blending in some Norilsk strategy to bring in more assets alongside the Nezhdaninskoye deal.

Celtic MD, Kevin Foo, could not comment to Mineweb about timing and the assets because negotiations are ongoing. However, sources say a successful conclusion of the IGA transaction is finally imminent and would be a step-change for the London listed producer.

London analysts are pretty sure that Celtic will pick up the Kuranakh and Kyuchus projects. The immediate impact is an increase in reserves of 13.1 million ounces, almost equally apportioned. So Celtic’s resource base, excluding the controversial Russian P categories, would rise to over 32 million ounces. Add in the P resources that Peter Hambro says would be justifiable, and you’re approaching 40 million ounces.

In terms of production, Celtic could end up being a serious challenger to the re-emerging 1 million ounce league. The foundation would be Nezhdaninskoye which is slated to achieve 500,000 ounces a year with a nearly $100 million upgrade. Add in the Kuranakh mine’s potential 200,000 a year, Kyuchus’s projected 180,000 ounces a year and additional production from Suzdal and Zherek, and Celtic has a 1 million ounce sticker before the decade is out.

The challenge is to understand what percentage of Celtic will end up in Alrosa hands. The market would clearly prefer this not to be a controlling interest, but there may not be an option and the trade off for near-term production and such a large reserve base should be worth the change.

When and if Celtic closes its IGA deal, there will be a mightily cheap and massive resource base on offer.

AGNICO-EAGLE [TSX:AGE | NYSE:AEM] +12%

The company’s recovery has been impressive after a forgettable year. Other price drivers are rumours of good exploration results near Bousquet.

CREW GOLD [TSX:CRU | OSE:CRU] +11%

The Norwegian miner, headquartered in London, has had a tough time achieving market visibility in the critical North American market. Apart from the lack of support from one of the Canadian investment houses, the company has also had to fight scepticism its capacity and vision.

Once you meet Crew CEO, Jan Vestrum, it’s clear where the drive and performance come from. Switching from a broad commodity focus, the company has chased a gold premium and put its majority owned Nalunaq Gold Mine in Greenland into production. In one of the more audacious exploits, Vestrum ignored the naysayers and put together a plan to ship Nalunaq ore to Spain where it is processed by fellow junior, Rio Narcea.

Doing that costs a bomb, but the 130,000 ounce a year operation is generating cash flow that could be invested in an onsite plant that would dramatically lower operating costs and provide more regular cash flow.

There are also other assets that don’t carry much value but which might realize gains with a little more value addition.

CANYON RESOURCES [AMEX:CAU] +7%

The company has been at the forefront of a campaign to overturn Montana’s anti-mining initiative. Several critical milestones were crossed recently, most importantly the right to place a measure on the November ballot.

The 30,000 signatures collected is a very good indication that the new ballot initiative is likely to pass, restoring Canyon’s right to develop the 10.9 million ounce McDonald gold project.

Mid-May was a fantastic time to buy in and even though there has been a strong recovery to $4 a share, you’re still getting the reserves for $14 an ounce. Sure, there’s still a lot of risk, but a good deal of it has also been erased. Even adjusting for future capital requirements, the prospect of ounces available again for production in the United States leaves Canyon relatively cheap.

PETER HAMBRO MINING [AIM:POG] +2%

Peter Hambro Mining has been soaring, but suffered when an equity issue was badly timed. Nevertheless, there’s plenty of prospect though the confusion surrounding the Ametistovoye transaction needs to be cleared up.

ABELLE [ASX:ABX] +2%

It’s a slim gain, but after last-year’s moon shot shareholders cannot be unhappy. Driven by majority owner Harmony Gold’s [HMY] determination to mop up minorities, Abelle has become a Papua New Guinea focused gold play.

Construction on the Hidden Valley project is imminent following completion of a final feasibility study. The proposed mine, set to produce its first gold in 2005, should produce around 175,000 gold equivalent ounces a year. At the Wafi project, Abelle managed to double resources.

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