Wesdome Gold Mines Range Bound

Aug 16th, 2010 – Comment

Nothing suggests a breakout or a breakdown and until volume and production pick up its not likely to move in either direction.


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wesdome

Hi Lou,

This stock has been somewhat range-bound for most of the year despite the high price of gold and the fact that the market cap is only $240 million and they will be producing over 200,000 oz this year. Do you think this company is under-valued ?

Mike

 

Hi Mike,

 

Wesdome Gold Mines Ltd. (WDO TSX) has had success in putting five mines into production in the Val d’Or area of Quebec and in Wawa, Ontario with two still operating. Here’s the rub on the story. They have missed earnings forecast in four out of the last five quarters. That won’t generally get a stock moving higher. In addition the estimate for gold production in 2010 is only 70,000 ounces compared to 96,000 in 2009. That doesn’t mean that they won’t get higher output going forward but that’s the data that is baked into the current price and trading pattern.

Another thing to consider is that the average daily volume over the last three months is about 76,000 shares. Over the last month it has only traded above that average in five out of the last 30 trading days. What we know about stocks is that you need better than average volume to move a stock higher. We can have higher volume and still have a stock go down but a stock can not go up unless investors are bidding for the shares and driving volume.

 

wdo

The three year chart supports your analysis that the stock has been range bound since November of 2009. It has built good support at $2.20 and resistance at $2.60. WDO has been the beneficiary of higher gold prices as it is unhedged. Higher gold prices also help to offset the higher cost of producing every ounce from their mines. The Q2 2010 report filed by the company indicated that their cash cost per ounce was $753/ounce.

 

 

What may help the stock going forward is a share buyback plan announced by the company on July 12,2010. Management announced that they intend on buying up to 6.68M shares or 10% of the public float. It never hurts to have a company buy back their shares but keep in mind that even if a company intends to buy back their shares it in no way obligates management to do so. They could let the registration lapse without buying a single share.

 

 

 

wdo2

The six month chart tells the tale of a stock that has tested its 200 day moving average five times since May which suggest that investors are willing to accumulate the stock at those levels.

 

At this point WDO is building a base in a range bound pattern. Nothing suggests a breakout or a breakdown and until volume and production  pick up its not likely to move in either direction.

Happy Capitalism!

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