3 Promising Gold Stocks

This past weekend, I attended the 33^rd Annual Gold Show in New Orleans.

I was surprised, and also encouraged, that attendance at the Gold Show was very poor. Sure, the aftermath of Hurricane Katrina hasn't helped New Orleans' image as a tourist destination. But even compared to two years ago, very few investors showed up.

This seems strange, considering that gold has been the best performing asset this decade by a wide margin. Basically, the only people in attendance were the hard core gold bugs – the same people who came to the conference when gold was selling for $250 an ounce. The halls seemed almost empty. The rooms where miners had displays had only a handful of investors checking them out.

By contrast, in 1980 when gold had just made its biggest top of the 20^th century, attendance at the Gold Show was ten times higher. It was like going to a World Series game.

Ironically, this low attendance is positive for gold, in that it implies that gold didn't need a flood of new investors to make its recent gains. It also tells us that when the flood does arrive, it will push gold prices considerably higher than they are today.

All in all, the conference was a very friendly and informative. I have no financial interest in the success of next year's conference, but I honestly think serious investors would get a lot out of attending next year's.

I should point out that most people at the Gold Show were sympathetic to libertarianism, as are most believers in hard currencies and precious metals. For instance, while signing books, I sat next to Congressman Ron Paul, who once campaigned for President on the Libertarian ticket. I share some of the libertarians' interests, though not all. Nonetheless, Dr. Paul and his wife seemed like lovely people, and almost everyone I met seemed open to and respectful of other’s ideas.

OUR 3 MOST PROMISING GOLD INVESTMENTS

More than ever, gold must be considered an asset class unto itself. For forty years, gold has performed basically in line with the S&P 500 and outperformed a number of overseas markets, including London. In today's volatile world, investors have little excuse for not owning gold.

That's not to say the stock market is ready to top out. Our guess is that stock prices will rise a little further. But when the top finally comes, the correction could be severe. On that day especially, you will be glad to own gold.

Incidentally, I recommended three gold stocks in my presentation at the Gold Show, which I'd like to pass on to you (even though you've probably heard them before).

The first is ASA, which we feel offers the best conglomeration of gold stocks available. David Christensen, the portfolio manager, is tops at finding precious metals miners who excel at increasing production. The fund offers a great combination of upside potential and risk control, in that the companies it buys are also low-cost producers.

We are also taking another look at Barrick (ABX) which used to be in our portfolio. The company recently eliminated its hedge program, which improves its potential to move higher alongside the price of gold. That makes Barrick more of a pure gold play, and one with a big portfolio of great assets. Barrick's outlook has improved and we may return it to our portfolio in the near future.

Finally, our top gold stock remains NovaGold (NG). NovaGold is partnered with Barrick on one of its key projects, and owns some of the largest copper and gold deposits in North America. The company has the potential to soar to 5X its current price. (Of course, with any junior, the risks are above average as well.)

So long as events like the Gold Show draw sparse crowds, you can be pretty sure the bull market in gold is a long way from a top. So for now, buy the dips in gold. Don't chase the rally in stocks.

When gold eventually peaks, it will be like tech stocks in 1999 – everyone will be clamouring to buy gold shares. That may be the time when we leave the sector with our profits in hand.

Comments

[Search4Truth:]

Thanks for the info.

I am hoping that by the time gold reaches mania phase with the masses, that it will also be a good time, for those who got into the metals early, to cash out and move into commodities.

I am a relative novice to the investment world, but I think I understand the principal of staking out a position and letting the opportunities come to me. Rather than chasing them. Which always seem to make one a day late and a dollar short.

Thanks again for the insights.

Oct 12 07:10 PM

[E.D. Hart:]

Barrick has been an absolutely horrible investment over the last decade compared to the other gold miners because they have lost a ton of money. Going forward with hedges is good, but I'm not enamored of their management.

Goldcorp does a much better job, and has a higher growth profile. NG as holdings in Alaska which may or may not be developed. They have gone nowhere in ten and five years, and lose money every year. Good lottery ticket, but that's not why people usually buy gold. For security, consider consistently profitable miners in politically safer jurisdictions: GG, AUY, and consider RBY.

The last company Rubicon Minerals is worth owning, because, unlike NG, it is surrounded by existing mining infrastructure that makes it almost inevitable they will either be bought out by their large mining neighbor Goldcorp, or they will develop a mine with highgrade ores next to existing roads and processors. Also, Rob McEwan owns something like 23% of RBY--he is the former CEO of GoldCorp.

Long GG, AUY, RBY.

Oct 12 08:39 PM

[Laurence Hunt:]

Re: GG, AUY, and consider RBY. Good argument for RBY. Its prospects are certainly more immediate than NG, and close to home from where we live. I am watching Galore Creek, but my way in is through Copper Canyon. If NG is ever able to develop Galore Creek, with a lot of dilution, mind you, Copper Canyon will go to ten times its present value - or probably more. I'm pretty sure that CPY (TSX) will outperform NG. Re AUY - have held it for years, but dislike shoddy sale of 3 mines to an insider company for half their market value, or less. Also, consider YRI.WT if you like Yamana. Or even G.WT.G for GG. (I'm mixing Cdn and US symbols here).

Oct 12 09:49 PM

[Albertarocks:]

Since we're dropping some good golden names, you might want to take a look at Osisko in Canada. Their reserves are absolutely stunning and they've ordered all the machines required to get the mine in operation without further ado. Their holdings are in the area of Val D'Or, Quebec near a town called Malartic. In fact, their holding is called Canadian Malartic and is considered one of, if not THE largest gold deposit on the planet. They own 100% of it.

Oct 13 01:33 AM

[Laurence Hunt:]

Do I recall correctly that both Goldcorp and Franco Nevada have some relationship with Osisko? Goldcorp has a hefty ownership stake. FNV? I'll have to look that up.

Oct 13 03:27 AM

[Mayascribe:]

Stephen: Take a look at Jaguar Mining (JAG). They expect to increase production by 700% by 2014. This is a junior going to mid-tier status. Their e-presentation is the best I've ever seen from any miner. Plus, it's in Brazil. JAG is my favorite, but Northern Dynasty, with their 82 billion pounds of copper, the largest copper strike ever in North America, and 52 million ounces of gold, makes (NAK) a long term play. NAK will begin scratching the earth next year.

Oct 13 09:55 AM

[The Geoffster:]

"When gold eventually peaks, it will be like tech stocks in 1999 – everyone will be clamouring to buy gold shares. That may be the time when we leave the sector with our profits in hand."
...and weapons at the ready.

Oct 13 10:18 AM

[Dr. Stephen...:]

Yes there is some information we give away for free, which is available free on the Internet. There is other information for which we charge. If you have an honest comment - critical or otherwise I would love to hear it. If you want to vent in a ludicrous way, save it.


On Oct 12 07:33 PM The EconomicJoker wrote:

> So wait, this is the same information that you charge people for?
> Not cool, doc. Not cool.

Oct 13 11:29 AM

[Ridge Hill ...:]

novagold is a dog........insider selling ...bark bark

fortuna silver and dynasty mines

to the moon

Oct 13 12:15 PM

[Dr. Stephen...:]

Soros, ASA, and Electrum, three pretty smart players are all major holders or buyers in NG. Have not looked at the two you mentioned but will. Thanks for the comment.


On Oct 13 12:15 PM Ridge Hill Capital wrote:

> novagold is a dog........insider selling ...bark bark
>
> fortuna silver and dynasty mines
>
> to the moon

Oct 13 12:29 PM

[Albertarocks:]

On Oct 13 03:27 AM Laurence Hunt wrote:

> Do I recall correctly that both Goldcorp and Franco Nevada have some
> relationship with Osisko? Goldcorp has a hefty ownership stake. FNV?
> I'll have to look that up.<

To quite honest I haven't investigated about Osisko's potential relationship with the other producers. But I do know that Osisko owns 100% of the Malartic play, and that's so big that I was satisfied enough to buy a few shares of Osisko.

www.osisko.com/en/

Oct 13 12:33 PM

[je:]

I am a former subscriber to Dr. Leeb and he is a true analyst. I do think he could use some technical analysis to improve his timing, but he provides good information.

Oct 13 01:37 PM

[Albertarocks:]

On Oct 13 01:37 PM je wrote:

> I am a former subscriber to Dr. Leeb and he is a true analyst. I
> do think he could use some technical analysis to improve his timing,
> but he provides good information.<

Ironically, just as I'm reading your comment, I'm watching him in a quick interview with BNN Canada. I agree with your assessment.

Oct 13 01:52 PM

[Jeff Nielson:]

Barrick has "eliminated its hedging" a few times already, and many are unconvinced that its latest declaration of being "unhedged" is any more accurate.

NG requires BILLIONS to get its project(s) off the ground. Yes, partnership with Barrick obviously helps, but there are DOZENS of lucrative deposits all over the Earth which require far LESS capital AND will provide superior rates of return.

The vast majority of upside-potential in this sector is among the JUNIOR miners (especially the junior producers). These companies require both more RESEARCH, and a better understanding of the sector than with the large-caps - which is why pseudo-'experts' on precious metals (like this author) scrupulously AVOID them.


On Oct 12 08:39 PM E.D. Hart wrote:

> Barrick has been an absolutely horrible investment over the last
> decade compared to the other gold miners because they have lost a
> ton of money. Going forward with hedges is good, but I'm not enamored
> of their management.
>
> Goldcorp does a much better job, and has a higher growth profile.
> NG as holdings in Alaska which may or may not be developed. They
> have gone nowhere in ten and five years, and lose money every year.
> Good lottery ticket, but that's not why people usually buy gold.
> For security, consider consistently profitable miners in politically
> safer jurisdictions: GG, AUY, and consider RBY.
>
> The last company Rubicon Minerals is worth owning, because, unlike
> NG, it is surrounded by existing mining infrastructure that makes
> it almost inevitable they will either be bought out by their large
> mining neighbor Goldcorp, or they will develop a mine with highgrade
> ores next to existing roads and processors. Also, Rob McEwan owns
> something like 23% of RBY--he is the former CEO of GoldCorp.
>
> Long GG, AUY, RBY.

Oct 13 01:54 PM

[Ridge Hill ...:]

Jeff

Fortuna silver is a homer and Dynasty Mines could be a 5 bagger....
both junior producers growing in the next year

i own tonnes of both at much lower prices

as a experienced canadian pro investor I have been investing in gold stocks for decades never have i seen a disconnect between small caps to large gold stocks

in 2007 small caps emerging producers were given 10 mult to cash flow and now a discount to NAV....fortuna was 5 buck target based on 14 times cash flow and now NAV while it has finally proced cash flow and looks like 40 cents next year jumping to 80 cents with a new mine in mexico for a stock at 160cdn..with 40 cents in cash


On Oct 13 01:54 PM Jeff Nielson wrote:

> Agreed, E.D. If this is the best the author can come up with among
> precious metals miners, he should stick with pumping Wall Street
> banks.
>
> Barrick has "eliminated its hedging" a few times already, and many
> are unconvinced that its latest declaration of being "unhedged" is
> any more accurate.
>
> NG requires BILLIONS to get its project(s) off the ground. Yes, partnership
> with Barrick obviously helps, but there are DOZENS of lucrative deposits
> all over the Earth which require far LESS capital AND will provide
> superior rates of return.
>
> The vast majority of upside-potential in this sector is among the
> JUNIOR miners (especially the junior producers). These companies
> require both more RESEARCH, and a better understanding of the sector
> than with the large-caps - which is why pseudo-'experts' on precious
> metals (like this author) scrupulously AVOID them.

Oct 14 05:52 AM

[Jeff Nielson:]

Two QUALITY miners, Ridge Hill.


On Oct 14 05:52 AM Ridge Hill Capital wrote:

> Jeff
>
> Fortuna silver is a homer and Dynasty Mines could be a 5 bagger....
>
> both junior producers growing in the next year
>
> i own tonnes of both at much lower prices
>
> as a experienced canadian pro investor I have been investing in gold
> stocks for decades never have i seen a disconnect between small caps
> to large gold stocks
>
> in 2007 small caps emerging producers were given 10 mult to cash
> flow and now a discount to NAV....fortuna was 5 buck target based
> on 14 times cash flow and now NAV while it has finally proced cash
> flow and looks like 40 cents next year jumping to 80 cents with a
> new mine in mexico for a stock at 160cdn..with 40 cents in cash<br/>

Oct 14 11:11 AM

[Dr. Stephen...:]

I should have made it clear that Barrick is under new management. The first decision by the new CEO was not to just stop hedging but to eliminate all previous hedges. For that purposes the company raised several billion dollars. In view of the company's long term history of hedging this was certainly a courageous decision - which had to be approved by a board that has favored hedging for about a generation. I think it likely that Barrick be revalued relative to other majors in the next six months. They have wonderful gold and PGM properties. As for Nova - see my comment above. This is a junior with world class deposits of gold and copper and the backing of very deep pockets including Barrick. As an aside the company fended off a takeover by Barrick, who was willing to pay 20 for the company pre credit crisis. Today the company's assets are better defined than then but we doubt that the new stakeholders would even listen to a bid of 20. It has home run potential but is risky.


On Oct 13 01:54 PM Jeff Nielson wrote:

> Agreed, E.D. If this is the best the author can come up with among
> precious metals miners, he should stick with pumping Wall Street
> banks.
>
> Barrick has "eliminated its hedging" a few times already, and many
> are unconvinced that its latest declaration of being "unhedged" is
> any more accurate.
>
> NG requires BILLIONS to get its project(s) off the ground. Yes, partnership
> with Barrick obviously helps, but there are DOZENS of lucrative deposits
> all over the Earth which require far LESS capital AND will provide
> superior rates of return.
>
> The vast majority of upside-potential in this sector is among the
> JUNIOR miners (especially the junior producers). These companies
> require both more RESEARCH, and a better understanding of the sector
> than with the large-caps - which is why pseudo-'experts' on precious
> metals (like this author) scrupulously AVOID them.

Oct 14 11:46 AM

[E.D. Hart:]

I dunno, Citigroup and Bank Of America are under new management too...not so sure about them when I have proven racehorses in the stall. Why do I want to bet on a wildcard (horse)? Excuse the mixed metaphor.

To paraphrase uncle Warren, "Id rather be sure of a good thing than hopeful of a great thing". True, Barrick may outperform, but its a little too much hope and not enough evidence for me.

I'll stick with capital creators, and not capital destroyers. I might be wrong, and Barrick may shoot the lights out--but I'll sleep better. Isnt that what gold is supposed to do?

Oct 14 05:47 PM

[Ridge Hill ...:]

barrick just sold their silver stream to silver wheaton and turned around and bought el morro a copper project....i know el morro as i was an original investor in mettalica who owned 30% (now new gold)
so what the hay is barrick doing???????

the previous terrible management at barrick tried to buy novadog and they were lucky to get out.....novadog has large capital costs etc......it has big leverage asa result




On Oct 14 11:46 AM Dr. Stephen Leeb wrote:

> I should have made it clear that Barrick is under new management.
> The first decision by the new CEO was not to just stop hedging but
> to eliminate all previous hedges. For that purposes the company raised
> several billion dollars. In view of the company's long term history
> of hedging this was certainly a courageous decision - which had to
> be approved by a board that has favored hedging for about a generation.
> I think it likely that Barrick be revalued relative to other majors
> in the next six months. They have wonderful gold and PGM properties.
> As for Nova - see my comment above. This is a junior with world class
> deposits of gold and copper and the backing of very deep pockets
> including Barrick. As an aside the company fended off a takeover
> by Barrick, who was willing to pay 20 for the company pre credit
> crisis. Today the company's assets are better defined than then but
> we doubt that the new stakeholders would even listen to a bid of
> 20. It has home run potential but is risky.

Oct 15 12:54 PM