Desert Sun Mining (TSX: DSM, AMEX: DEZ)
Date / Location of update	Comments
23rd January 2006, Weekly Update (Warrant Price: C$2.02)	We added the Desert Sun Mining warrants (TSX: DSM.WT) to the TSI Stocks List in June of last year when they were trading at C$0.49 and most recently recommended them in early December when they were trading in the low-C0.70s. They closed at C$2.02 on Friday after trading as high as C$2.19 during the day. The warrants are still under-valued relative to the stock, but we've decided to exit now at a profit of 312% based on our original entry price and Friday's closing price. The reason is that the stock is now both expensive and overbought, thus creating a significant risk of a sharp correction in the stock price and an even sharper correction in the warrant price.
9th January 2006, Weekly Update (Stock Price: C$3.85, Warrant Price: C$1.65)	Desert Sun Mining (TSX: DSM, AMEX: DEZ) gained 30% during the final two days of last week on extremely heavy volume. The rise was due to an analyst from a major Canadian brokerage (Canaccord) coming out with a strong buy recommendation and a price target of C$6.20. The stock has exceeded our technically-based upside target and is now fully valued based on the current gold price. Our suggestion is therefore to take advantage of this buying spike, exit half your position, and send a thankyou note to Canaccord. It's probably a good idea to retain half because once a stock becomes popular it will often keep moving higher during a rally phase even if it is over-priced. Just look at Glamis Gold, a stock that was very expensive at US$18 a few months ago and is now almost US$30. We are going to exit DSM at a profit of 685% based on our December-2002 entry price of C$0.49 and Friday's closing price of C$3.85. We will, however, keep the DSM warrants (TSX: DSM.WT) in the Stocks List and continue to follow the stock at TSI. Our preference would actually have been to record a profit on the warrants and to leave the stock in the List, but the warrants are presently very under-valued relative to the stock (based on a stock price of C$3.85 we calculate the fair value of the warrants to be C$2.00, versus Friday's closing price of C$1.65). If you own the warrants and don't own the stock you might consider exiting half of your position even though the warrants are under-valued.
4th January 2006, Interim Update (Stock price: C$2.98)	Desert Sun Mining (TSX: DSM, AMEX: DEZ) is currently challenging 'round number' resistance at C$3.00. We would be inclined to take partial profits on DSM if given the opportunity to do so in the C$3.30-C$3.50 range within the next three months.
5th December 2005, Weekly Update (Stock price: C$2.28)	Desert Sun Mining (TSX: DSM, AMEX: DEZ). Buy the stock in the C$2.20s (US$1.80s) or the warrants (TSX: DSM.WT) in the low-C$0.70s.
30th November 2005, Weekly Update (Stock price: C$2.30)	Desert Sun Mining (TSX: DSM, AMEX: DEZ) announced on Monday that it had raised C$30M by issuing 12M units at C$2.50 per unit, with each unit consisting of one common share and one-quarter of one common share purchase warrant. Taking into account the value of the warrants, the new shares were issued at a discount of around 15% to last Friday's closing price, or a discount of around 10% to the average price over the preceding week. As is invariably the case when a substantial number of new shares are issued at a discount to the current market price, the stock market reacted negatively to this news. We were surprised by management's decision to issue more equity at this time given that the company has plenty of cash in the bank, no debt, and a mine that should now be cash-flow positive. However, if companies have to issue more equity then the best time for them to do so is when market conditions are favourable and the stock price is near an all-time high. In this respect the timing of the issue was good. The main use of the funds will be to finance the development of the Morro do Vento deposit. Currently, DSM's Jacobina Mine in Brazil is producing gold at the annual rate of around 100K ounces and with this week's financing the company should now have enough money to increase production to 150K ounces/year over the coming 12 months by bringing Morro do Vento on line. In our opinion, DSM would be suitable for new buying in the C$2.20s. It is one of the stocks with a good chance of making a new high during the first quarter of next year even if the HUI has just made an intermediate-term peak. Also, this week's pullback has taken the DSM warrants (TSX: DSM.WT) back to levels where new buying might be appropriate (the warrants closed at C$0.71 on Wednesday).
14th November 2005, Weekly Update (Stock price: C$2.22)	Desert Sun Mining's (TSX: DSM, AMEX: DEZ) latest quarterly results, which were announced last week, were very encouraging because they showed that the recently-commissioned Jacobina Mine in Brazil is performing in accordance with the projections laid-out in the Feasibility Study. Cash costs came in at around US$290/ounce during the September quarter with production at around 60% of design. On this basis the company's management is confident that cash costs will fall to around $260/ounce when production ramps up to the design rate of 100K ounces/year during the current quarter. An additional reduction -- to around $230/ounce -- is expected to occur next year as a result of the currency hedging undertaken by the company (this year's increase in the Brazilian Real has added around US$30/ounce to production costs). At this stage it looks like DSM's Jacobina mine will generate at least US$15M-$20M of cash-flow next year. We doubt that strength in the Brazilian currency will be a longer-term issue for DSM because the Real is likely to move lower over the coming 1-2 years. Right now the Real is being supported by very high short-term interest rates (the official rate in Brazil is presently 19%), but once the interest rate advantage begins to dissipate it should resume its long-term decline. We've seen something similar play-out with the South African Rand over the past two years. We expect that DSM will trade at a new high (above C$2.60) within the next few months.
9th November 2005, Interim Update (Stock price: C$2.21)	Fundamentally and technically, Desert Sun Mining (TSX: DSM, AMEX: DEZ) appears to be in very good shape right now. Furthermore, at C$0.66-C$0.70 the DSM warrants (TSX: DSM.WT) are significantly under-valued relative to the stock.
2nd November 2005, Interim Update (Stock price: C$2.24)	The recent price action of Desert Sun Mining (TSX: DSM, AMEX: DEZ) has the look of a consolidation within an on-going upward trend (see chart below). A breakout from this consolidation pattern would suggest that a test of the February-2005 peak (C$2.60) was in store.
14th September 2005, Interim Update (Stock price: C$2.06)	Below is a chart of Desert Sun Mining (TSX: DSM, AMEX: DEZ). If yesterday's marginal upside breakout is able to 'stick' then DSM could be on its way to a test of February's peak. We highlighted the DSM warrants (TSX: DSM.WT) as a buy at the end of August when they were trading at C$0.55. The warrants, which have an exercise price of C$2.50 and an expiry date of November-2008, are still a reasonable speculation if they can be purchased below C$0.70. Be warned, though, that they are quite illiquid and can therefore be difficult to trade.
31st August 2005, Stock Selection Update #34 (Stock price: C$1.89)	The Desert Sun Mining warrants (TSX: DSM.WT) are a good speculation near yesterday's closing price of C$0.55.
18th July 2005, Weekly Update (Stock price: C$1.94)	When we are invested in a junior mining company that is in the process of bringing a new mine into production we are always a bit nervous. This is because, regardless of the amount of planning and testing that has been done in the lead-up to production, you can never really be sure that the mine will meet expectations (recovery rates, grades and production levels) until after commercial production has been achieved. Last week's announcement by Desert Sun Mining (TSX: DSM) that commercial production had been achieved at its Jacobina mine in Brazil was therefore important. DSM will be a good stock to accumulate during sector-wide selling squalls over the remainder of this year in preparation for the 2006-2008 gold bull market.
4th July 2005, Weekly Update (Stock price: C$2.00)	One of the stocks we highlighted as a particularly strong buy near the May lows in the gold sector was Desert Sun Mining (TSX: DSM, AMEX: DEZ). It is a junior that is currently in the process of bringing its first mine -- the 100K-ounce/year Jacobina mine in Brazil -- into production. Small development-stage gold stocks can make excellent long-term investments, but they generally aren't good short-term trading vehicles. In this regard DSM is an exception, though, because the stock tends to move in line with the overall gold sector but with much greater volatility (it drops more during the sector-wide declines and moves up more during the advances). The Canadian stock market was closed on Friday so the below chart of DSM reflects the situation at the end of trading on Thursday. However, in US trading on Friday the stock gained 5% and if this gain is duplicated in Canada on Monday it will result in a breakout above resistance at C$2.00. This, in turn, would create a short-term technical objective of C$2.25. Despite its large gains over the past several weeks DSM remains under-valued and, in our opinion, will trade at more than double its current price within the next 18 months. We therefore think it would be a mistake for anyone to lose their position in this stock. However, it would be reasonable for traders to take SOME money off the table if it moves up to the C$2.10-2.25 range over the coming fortnight.
2nd May 2005, Weekly Update (Stock price: C$1.55)	Buy at the current price (the stock has already dropped to our buy zone). Also, the DSM warrants (TSX: DSM.WT) would be a reasonable speculation if they dropped to the low-0.40s. They closed at C$0.57 on Friday, but with the stock at current levels we estimate fair value for the warrants to be around C$0.40. As previously advised, we will add the DSM warrants to the TSI Stocks List if they trade at C$0.42.
15th April 2005, Market Alert #145 (Stock price: C$1.59)	...Desert Sun Mining (TSX: DSM, AMEX: DEZ) has dropped to the buy zone (the CAD1.50s) we mentioned a couple of weeks ago, so the opportunity now exists to accumulate this stock at a very attractive level. For some reason the Desert Sun Mining warrants (TSX: DSM.WT) were pushed up to C$0.65 during yesterday's trading session. At this level they are over-priced relative to the stock, but if they were to drop to the low C$0.40s they'd be a very good buy. In fact, we will add these warrants to the TSI Stocks List if they trade at C$0.42.
4th April 2005, Weekly Update (Stock price: C$1.93)	The stock price of Desert Sun Mining (TSX: DSM, AMEX: DEZ) has recently been very weak. This is obviously in response to weakness in the overall sector, but we suspect that the stock has also been pushed lower by the company's decision to forward-buy some Brazilian Real in order to hedge its currency exposure (the company's operating costs are denominated in Real). We cringed when we saw the announcement of the currency hedging, partly because we expect the Real to fall over the coming 12 months and partly because we prefer that the mining companies in which we own stakes steer clear of hedging altogether unless the hedging is necessary for survival reasons. Other investors probably had a similar reaction. In any case, at this stage the amount of currency hedging undertaken by DSM is relatively small and therefore not a major issue, so we view the recent weakness as a great opportunity to accumulate an extremely under-valued stock. In our opinion, a drop to support at around C$1.50 (see chart below), or the US$ equivalent if trading the stock in the US, represents the maximum downside potential and the optimum level for new buying. However, if you currently have no exposure to this stock then it would be reasonable to take an initial position now.
7th March 2005, Weekly Update (Stock price: C$2.29)	Desert Sun Mining (TSX: DSM, AMEX: DEZ) made two announcements on Friday, one regarding a C$20M financing at C$2.33/share and the other regarding the purchase of some currency protection. The equity financing is necessary in order to fund the expansion and further development of the Bahia gold district in Brazil (bringing the 100K oz/yr Jacobina mine into production was just the first phase of a much larger project). What interests us more, though, is the decision to purchase some protection against a further strengthening of the Brazilian Real. This protection was achieved by forward-buying Real for delivery during 2006. The reason for buying the currency protection is that once the Jacobina mine goes into production many of DSM's operating costs will be denominated in the Brazilian currency so a strengthening of the Real against the US$ would reduce the company's profit margin. However, this move by DSM to hedge its currency exposure is a minor concern to us because 12 months from now we think the Real will be trading much LOWER against the US$. In our opinion it is not a coincidence that a lengthy recovery in the Real began in October of 2002 (a chart of the Real/US$ exchange rate is included below). This was the time when the US stock market bottomed and when investors throughout the world started to become less risk averse. The Latin American financial markets and currencies were major beneficiaries of the shift towards riskier investments that ensued, but this trend is probably very close to an end. If our views are roughly on-the-mark then DSM's decision to hedge its currency exposure will result in lower profits during 2006 than would otherwise have been achieved. It's just a minor concern at this stage because we are only talking about $12M of forward purchases, but would become a greater concern if the company decided to expand its currency hedging. Despite the above-mentioned concern, our view continues to be that DSM offers one of the best risk/reward ratios in the sector. Most TSI subscribers probably already own the stock since we've been following it for more than 2 years, but if you don't then a pullback to the low-C$2.20s (or the US$ equivalent if buying the AMEX-traded DEZ) would be a reasonable place to take an initial position.
19th January 2005, Interim Update (Stock price: C$2.16)	Desert Sun Mining (TSX: DSM, AMEX: DEZ) announced some more drilling results on Wednesday. The results are quite interesting because they show significant gold mineralisation in a relatively under-explored section of the company's Bahia gold belt in Brazil (the Jacobina Mine, which DSM is scheduled to bring into production over the next few months, is just one part of a much larger gold district controlled by the company). The news was enough to propel DSM to a new all-time high of C$2.27 at one point before some selling pushed the price back down to C$2.16 (up 10% on the day). DSM remains very under-valued and is one of the gold/silver stocks we've said would form part of the core position that we expect to hold throughout this year's downturn. Now that it has broken out to the upside new buying entails greater short-term risk than was the case even one week ago, but it might become available at lower levels if the HUI breaks sharply below 200 at some point over the next few weeks. In last week's Interim Update we highlighted the DSM warrants (TSX: DSM.WT) as an interesting speculation in the C$0.55-C$0.60 range. The warrants traded decent volume in this range over the ensuing few days so anyone who wanted to take a position could have done so at a good price and would now be sitting on a quick gain of 30%-40%. The short-term risk is now higher, but as is the case with the stock it's possible that a breakdown in the gold sector will provide an opportunity to buy the warrants at lower prices.
12th January 2005, Interim Update (Stock price: C$1.90)	The below chart of Desert Sun Mining (TSX: DSM, AMEX: DEZ) shows that the stock might be building a base below C$2.00. A close above C$2.00 would project a move up to around $2.40, but if this occurred it would still leave the stock well below our current valuation estimate of C$3.50. The Desert Sun Mining warrants (TSX: DSM.WT), which have an exercise price of C$2.50 and an expiry date of Nov-2008, look like an interesting speculation in the C$0.55-C$0.60 range.
15th December 2004, Interim Update (Stock price: C$1.91)	In the 17th November Interim Update we said: "...Desert Sun Mining (TSX: DSM) reported a 300K-ounce increase in the measured and indicated resource at its Jacobina project in Brazil and mentioned that additional resource calculations would be announced before year-end. Because construction of the Jacobina mine is almost complete any increase in reserves is potentially important because in this situation even a modest increase can result in a much better internal rate of return for the project." The additional resource calculations mentioned above were announced yesterday. Of particular note, the measured and indicated portion of the 4M-ounce total resource has increased by 690K ounces to 2.05M ounces. Our opinion continues to be that DSM offers one of the most attractive risk/reward ratios in the gold sector and that it is a good stock to buy on pullbacks for those looking for increased exposure to this sector of the market.
17th November 2004, Interim Update (Stock price: C$1.95)	On Wednesday Desert Sun Mining (TSX: DSM) reported a 300K-ounce increase in the measured and indicated resource at its Jacobina project in Brazil and mentioned that additional resource calculations would be announced before year-end. Because construction of the Jacobina mine is almost complete any increase in reserves is potentially important because in this situation even a modest increase can result in a much better internal rate of return for the project. Wednesday's 'news' should not have come as a surprise to anyone who has been following the DSM story, so in that respect the 21% leap in the stock price was a little strange. Therefore, rather than simply a reaction to the predictable news we suspect that Wednesday's surge in the stock price was the culmination of several months of consolidation during which stock was transferred from 'weak hands' (people who were worried by the preceding decline in the stock price and who thought the gold bull market might be over) to 'strong hands' (people who recognised that the stock offered exceptional value). This consolidation most likely resulted in the absorption of a lot of overhead supply, meaning that once a technical breakout occurred there was nothing to get in the way of a sharp rise in the stock price. The following extract from the 22nd September Interim Update was written when DSM was trading at C$1.31 and it is still applicable, but note that you DON'T make money in junior gold stocks by buying AFTER a stock has already broken out and rocketed higher. "DSM is on track to bring the 100K oz/yr Jacobina Mine into production during the first quarter of next year and to increase its mineable reserves to around 2M ounces. Once Jacobina is in production at the design production rate and assuming the aforementioned 2M-ounce reserve (the current reserve is around 1M) a reasonable market value for the company would be US$200M (100K ounces of production at US$2,000/oz or 2M ounces of reserves at US$100/oz). This would equate to around C$3.50/share assuming a total share count of 75M."
20th October 2004, Interim Update (Stock price: C$1.31)	...Desert Sun Mining (TSX: DSM, AMEX: DEZ) has just bounced from near the bottom of a price channel. A move up to the channel top (C$1.65-C$1.70) would now be a conservative expectation while an upside breakout from the channel would be likely at some point.
4th October 2004, Weekly Update (Stock price: C$1.40)	Desert Sun Mining (TSX: DSM) announced last Thursday that it had raised C$20M via a "bought deal" financing (13.8M new shares will be issued at a price of C$1.45/share). This is a reasonable deal because it reduces risk in that the $15M loan facility secured in June will no longer be required and DSM will be able to remain debt free. The company now has enough money in the bank to take the Jacobina mine through to commercial production and should, in fact, be left with a 'cash cushion' of around C$10M once commercial production is achieved.
22nd September 2004, Interim Update (Stock price: C$1.31)	Desert Sun Mining (TSX: DSM) announced on Tuesday that Bruce Humphrey had joined the company as president and chief operating officer. A new appointment at a junior mining company is generally not the sort of news that generates much enthusiasm in the market, but we think this is a significant step forward for DSM. As noted in the DSM press release, in his most recent position Mr. Humphrey was senior vice-president and chief operating officer of Goldcorp Inc. where his responsibilities included the redevelopment, start-up and operation of the high-grade Red Lake mine. As we understand it, Mr Humphrey spent about one month doing his 'due diligence' on DSM before accepting the position. DSM is on track to bring the 100K oz/yr Jacobina Mine into production during the first quarter of next year and to increase its mineable reserves to around 2M ounces. Once Jacobina is in production at the design production rate and assuming the aforementioned 2M-ounce reserve (the current reserve is around 1M) a reasonable market value for the company would be US$200M (100K ounces of production at US$2,000/oz or 2M ounces of reserves at US$100/oz). This would equate to around C$3.50/share assuming a total share count of 75M. In our opinion, DSM was a strong buy near the current price of C$1.31 prior to this new management appointment and it is now an even stronger buy. Obviously, things can go wrong between now and when commercial production is achieved, but the current stock price offers a large margin of safety.
23rd August 2004, Weekly Update (Stock price: C$1.29)	Desert Sun Mining (TSX: DSM, AMEX: DEZ) is being valued by the market as if it were an early-stage exploration company, but DSM's Jacobina mine in Brazil should be in production by the first quarter of next year. If the company can achieve its targets over the coming 9 months then DSM will clearly be worth in excess of C$3.00/share. From a technical perspective the stock has resistance at C$1.45-1.50 and once through there it should move quickly through to C$1.75.
9th August 2004, Weekly Update (Stock price: C$1.15)	For anyone who doesn't already have a position in the stock now would be a good time to accumulate some shares of Desert Sun Mining (TSX: DSM). At its current price of C$1.15 this is one of the most under-valued situations we know of.
5th July 2004, Weekly Update (Stock price: C$1.38)	Desert Sun Mining (TSX: DSM) is a company that should be well known to long-time TSI subscribers because it has been in the TSI Stocks List for about 18 months. If the company's management achieves the goals it has set for this year in terms of resource/reserve increases and construction at the Jacobina mine site then this stock will rank even more highly in the future. Jacobina is expected to produce 75,000 ounces of gold next year and 105,000 ounces of gold per year thereafter. A close above C$1.50 would suggest that the stock was on its way back to C$2.00.
12th May 2004, Interim Update	Desert Sun Mining (TSX: DSM) traded as low as C$0.90 on Monday before rebounding to close at C$1.10 on Wednesday. We can't say for sure that Monday's spike down to 0.90 created the ultimate correction low for the stock, but the price action is certainly consistent with a low having just been put in place. What we can say is that anyone who sold this stock in the 0.90-1.20 range over the past couple of weeks either doesn't have any idea of the value of the stock, or is being forced to sell stocks because they made the mistake of buying on margin, or is operating under the mistaken impression that a sharp decline in a stock's price indicates that there is something wrong with the underlying business (most stock-price fluctuations have nothing to do with changes in the underlying fundamentals), or is simply acting out of fear. Here's an update on DSM's progress with regard to its Jacobina gold project in Brazil: 1. The mine construction is on track, the mines have been de-watered, the plant expansion is almost complete (from 1 million to 1.5 million tonne capacity) and the major mobile equipment is being ordered. The company expects to pour gold in the first quarter of 2005 and be at full production by second quarter of 2005 at a steady state of 100,000 ounces per year. The cash cost should be below $200. The capital cost may be about 5% higher than anticipated because of the increase in price of steel, although the Brazilian Real is down from 3.00 per US$ to 3.15 (3.0 was used in the feasibility study and a weaker Real improves the project's economics).   2. There are presently 14 drill rigs working away at the site. A major new zone has been identified (Morro do Vento) which has the potential to add about 2 million ounces.   3. One of DSM's goals for this year is to increase the MINEABLE reserve from 800,000 ounces (the number used in the feasibility study) to about 2 million ounces and the TOTAL resource from 4 milion to 5 million ounces. All this resource is on only 10% of the property.   All this and DSM's enterprise value (market cap + net debt) at its current market price is only about C$50M. In the latest Weekly Update we said investors should "focus on a combination of current value and growth prospects. These characteristics are most readily found amongst the juniors, but in the current environment we would stick with the juniors that are very well financed, have multi-million ounce deposits and have reasonably liquid stocks." DSM meets these criteria.
25th February 2004, Interim Update	From a valuation perspective Desert Sun Mining (TSX: DSM) is, at its current price of C$1.43, one of the best buys we know of in the gold sector. The company currently has a 1M ounce reserve, a 4M ounce resource, and existing mining infrastructure at its gold project in Brazil. Also, the reserve and resource numbers are likely to increase over the course of this year (to 2M and 5M, respectively) and the company expects to bring its mine into production over the next 12 months at the annual rate of 100,000 ounces. All this and DSM has an enterprise value (market cap + net debt) of only C$60M. It's possible that DSM will get cheaper over the next few weeks, but we doubt that it will get a lot cheaper.
19th November 2003, Stock Selection Update #12	With the upward trend in the gold sector very much intact we aren't enthusiastic sellers, but anyone with large exposure to the sector should take advantage of buying spikes in individual stocks to either reduce their exposure or to shift money to other gold (or silver) stocks that have greater upside potential. To reflect such an approach we are going to take profits on HALF of our position in Desert Sun Mining (TSX: DSM). DSM's price has gained 347% since we added it to the Stocks List about 12 months ago. This, however, is not a good reason to take any profits as it is the likely FUTURE price action, not the historical price action, that should determine whether we buy, sell or hold. We like the prospects for Desert Sun the company and its stock price. In particular, we like the fact that the company has positioned itself to move rapidly towards production over the next 1-2 years. In fact, this is why we are going to retain 50% of our DSM position.