Andina appears a good way to play the gold sector and still get the possible upside of a buyout. Meanwhile, Hambro sees bright outlook for both gold and copper.

For more extensive due diligence on Andina’s large gold project (and mining district), there is an excellent animation video on their home page discussing the project and Monday’s pre-feasibility study.

Andina Minerals Inc. (TSX: V.ADM, Stock Forum, $1.68)
www.andinaminerals.com

We successfully bottom fished Andina at $1.12 in May and took a 45% gain heading into December.

On Friday the stock ran to $1.90 ahead of a long awaited PFS but is now under pressure as the results set in. Many had very high expectations for this large tonnage lower grade deposit in Chile – which initially ran into metallurgical problems. That has kept the valuation depressed all year.

The study released Monday morning (in my opinion) has resulted in far more positives than negatives. The stock did the initial selloff down to $1.58 but near $1.60 buyers swarmed back in. It would appear that may be the low range. Otherwise it’s trading good volume in the $1.60's.

While many appear disappointed at the numbers, we should take a few things into consideration that could make this worth speculating on.

1) More often than not, if a large company decides to take a run at another, they will wait and do so after the pre-feasibility study or the final feasibility study. Often it’s within months of those results being published. It’s a possibility with ADM given the ounces

2) They have 109 million shares outstanding so the market cap is approx. $180 million with $30 million in the bank (Sept 30th). The PFS shows the project having a Net Present Value of $863 million.

3) Key Statistics: 6.6 million ounces of gold at average grade of 0.73 g/t, and another 2.3 million ounces measured and indicated. A 15 year-mine life at 283,000 oz per year production, cash operating costs at $584/oz first 5 years, estimated capital costs to build a mine $550 million.

If we assign $50-per-ounce to the 6.6 million ounces and another $25 to the potential 2.3 million ounces, we arrive at fair value for the project in the range of $380 million. Those proven ounces would be worth closer to $100/oz if put into production. However if we even assume fair value of this project is $300 million and the current market cap is $150 million (if we pull out their cash), then a person can speculate on a very nice gold project that is likely trading at half its fair value.

Andina’s land holdings also encompass 45,000 hectares which in itself is valuable to shareholders. The resource defined to date has been based upon exploration on the southern part of the property only. The known reserves at Volcan have been tested to 700 metres and they believe the potential exists to expand the ounces at greater depth.

Andina appears a good way to play the gold sector and still get the possible upside of a buyout in 2011 - contrary to what the market seems to think at the moment. If the liquidity continues in the $1.60's, I believe this is worth looking at closely.

GOLD AND COPPER

Recently we were able to garner insight into these two commodities when Evy Hambro gave an interview in London. Hambro manages $17 billion for Blackrock and is one of the world’s most successful resource fund managers.

He sees copper remaining at high levels due to supply constraints and strong demand from industrialising nations. He believes copper has some of the best fundamentals among industrial metals. On the supply side they see declining ore grades at existing mines (they are showing their age), and many new mines are in developing countries and hampered by political issues.

Gold Hambro expects to range trade near recent highs in 2011. This likely means $1300 to $1400. He believes the sector will remain a favourite among investors. New mines are coming on-stream but safe haven demand remains strong as central banks continue to buy. ETF and consumer demand also remains very strong.

Hambro points to recent research that shows despite near record prices, in terms of capacity issues the precious metal has a long way to run. Even today, after the gold rally had reached the 10-year high mark, the metal represents a mere 0.6% of total global financial assets. This is near the all-time low, 0.3%, reached in 2001 and significantly below the 3% it accounted for in 1980.

Disclosure - Danny Deadlock owns 5,000 shares of ADM