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Tickers in this Article: GRS, CDE
Gold has soared in the last year as a safe haven from a weakening dollar, a massive trade and current account, and as a safe haven from geopolitical tensions in Iraq, Iran and North Korea. But, what investments in this arena have actually worked for small investors?

Many commentators have argued that players in the $1.2 trillion hedge fund industry have shorted the gold stocks while taking long or ownership positions in the underlying commodity, without a real desire to take delivery.

Well, little Gammon Lake Resources (GRS) has executed during the past year on a simple plan: build productive resources. Its shares have doubled to $14. Gammon Lake Resources Inc. is engaged in the acquisition, exploration and development of resource properties in Canada and Mexico.

The Company focuses on the exploration and development of its mineral interests (comprising a total of 44 mining concessions encompassing approximately 3,500 hectares) in the municipality of Ocampo, in the State of Chihuahua, Mexico - collectively, the Ocampo Project.

During 2005 and 2006, GRS has been developing massive discoveries in our neighbor to the south, Mexico.

For investors worried about political risk, Mexico is a relative safe haven, despite the recent disputed election. No one in Mexico or Canada wants to see the trading bloc in this hemisphere fail, and this year's intensive discussions about 'amnesty' for illegal aliens working in the US points to an inevitability.

For the US to compete with China and India, employers in labor-intensive industries such as agriculture will pay these "guest workers" on a seasonal basis until they are either given a path to citizenship, or work cards.

In May 2006, GRS announced it had arranged the financing to complete its Ocampo Gold-Silver Mine in Chihuahua, Mexico, and its partner Mexgold's El Cubo Mine in Guanajuato, Mexico. GRS announced it secured commitments for an additional $40m in debt financing from Scotia Capital and Societe Generale, while remaining completely unhedged for future production.

This is the result of an increase to the credit facility arranged with Scotia Capital and Societe Generale last year. Proceeds from this facility will be applied to remaining costs related to the project, including completion of the mill facilities, working capital costs, corporate development and exploration programs.

In early June 2006, GRS and Mexgold Resources Inc. announced the production results from the Company's Ocampo Gold-Silver Mine in Chihuahua, Mexico, and Mexgold's El Cubo Mine in Guanajuato, Mexico. Precious metals production from the heap leach at Ocampo continues to ramp up toward full commercial production.

The Ocampo Heap Leach produced 7,729 Gold Equivalent Ounces in the month of May, equaling 5,737 ounces of gold and 101,605 ounces of silver. The Ocampo Project consists of an underground mine, which uses standard underground mining equipment and is designed to produce 1,500 tons of ore per day, and an open pit mine with 13,000 tons per day.

With a market cap of $1.2B and 65% institutional ownership, GRS has sponsorship and investment ownership by Goldman Sachs and UBS Securities, while its other three largest institutional owners, Franklin Advisers, Capital Research and Tocqueville Asset Management, have all been accumulating shares over the past six months.


GRS has nearly doubled in the past year, while the $1.4B market cap industry peer Coeur d 'Alene Mines (CDE) has appreciated only 25%. Major Canadian brokerages cover GRS and S&P reports that for fiscal year 2006, analysts estimate GRS will earn $0.83.

For fiscal year 2007, analysts estimate that GRS's earnings per share will grow by 71% to $1.42. On a trailing PE basis, GRS trades at 45 times, but earns 13.6% net margins. There is a significant upside if the mine development plays out.

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