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Gold Miner Ignores High Gold Prices

Stocks in this article: FRG

NEW YORK ( TheStreet) -- Fronteer Gold (FRG) is making money despite the fact that it's not producing any gold.

The junior gold miner earned 7 cents a share in the last quarter, but not through gold production. Instead, the company sold small noncore assets and invested in the competition in order to make money.

Fronteer has $175 million in cash and no debt and continually invests a portion of that extra money -- $3 million to $5 million -- into other gold companies that have attractive projects but aren't necessarily practical to buy or partner with.

The company primarily has three gold mining projects in Nevada that should be producing by 2014. Shares are up 86% year to date. The stock has seven buy ratings and just one hold with an average price target of $9.33.

I sat down with CEO Mark O'Dea at the Denver Gold Forum to delve into the company's growth strategy

Do you think that Fronteer can really sustain this monster stock rally and growth rally that it's had ?

O'Dea: You know I think when investors are evaluating which horses to back or which companies to get involved with we're seeing a trend towards higher quality in terms of grade and profitability, financial robustness. You look at the underpinnings of Fronteer and we've got excellent cash positions, we've got an industry leading balance sheet, we've got projects that are high quality.

We're in jurisdictions that the market likes. We're a team that's been able to execute on our plans well. We've got no debt, we've got a nice tight capital structure and all those things have combined to really build confidence for investors that this is a company that is sustainable, it's a company that's been able to build an engineering growth business. There'll be ups and downs in the market and there'll be ups and downs in the share price reflected by underlying commodity fluctuations and volatility.

What are your cash costs?

We're in the process of wrapping economics around two projects right now. Long Canyon we did a preliminary economic assessment (PEA) on it about two years ago when the project was a lot smaller. Things will scale up and with that scale-up cash costs will become lower as the unit costs go down. At the time we did the PEA our cash costs were $350 per ounce. It was a project that paid back in a little over a year with 66% rate of return.

Now when I was reading up on your company I was a little confused as to your long-term strategy. Do you want to be a producer or do you want to be a company that goes, develops assets, produces but really wants to sell those assets at a premium to companies hungry for gold. What is your business model?

We are very much focused on transitioning from an exploration and development company to a company that operates successful mines. We built the team to do that, we're fully built now with our development and operational team, our business development unit. We've optimized our portfolio over the last couple of years selling noncore assets and really honing in our focus on jurisdictions where we can operate and make a difference ... We've recently sold two projects in Turkey and that's not because we didn't like the projects or because we didn't want to become an operator we did that so we could reallocate ... those funds to our core projects that we do operate in Nevada.

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