The Place to Be for Gold in 2007

2006 was a year where gold prices and Net Asset Values [NAV] grew faster than the share prices of most of the goldminers. 2007 will be the year of earnings growth, which will be the driver behind rising share prices for many gold stocks.

In 2006, the NAV premium to share price for the senior and intermediate goldminers was just +4 pct, but throughout 2004 and 2005, it ranged from +25 pct to 27 pct. With the changing earnings picture this year, I expect prices to pop back to normal levels.

Of course, in 2007 there will be rising operating and developing costs (energy, labor and materials) that the gold mine operators will have to control.

In the past 24 months, the industry saw a number of larger companies acquiring smaller ones, and paying substantial premiums. There was Goldcorp (GG) and Glamis (GLG) and before that Glamis and Western Silver (WTZ). Also, Gold Fields (GFI) bought Bolivar (Venezuela) and Western Areas, and IAMGOLD (IAG) acquired Cambior (CBJ). Yamana (AUY) acquired Viceroy. Before that there was Barrick (ABX) and Placer Dome.

I expect more of the same this year from Barrick, Goldcorp, IAMGOLD and Yamana. Without Pierre Lassonde as President, I don’t know what to expect from Newmont (NEM).

The place to be in 2007 is not in any of these companies (except probably Yamana) or in the companies with hedged production, like Barrick or AngloGold Ashanti (AU), Minas Buenaventura (BVN), Lihir (LIHRY), Newcrest (NCMGY.PK), Aurizon (AZK), or Red Back, or in one controlled by a mega-rich Russian oligarch (Polyus (NILSY)) by the name of Mikhail Prokhorov who sits, with at least 20 women today in a French jail cell, apparently accused of being their pimp.

No, the place to be is where the company is going from losses to significant profitability. That list (in alphabetical order) includes:

Agnico-Eagle Mines (AEM)
Alamos Gold [AGI.TO]
Eldorado Gold (EGO) [ELD.TO]
Gammon Lake Resources (GRS)
Guyana Goldfields [GUY.TO]
Harmony Gold (HMY)
Hecla (HL)
High River Gold [HRG.TO]
Highland Gold [HGM.L]
Meridian Gold (MDG) [MNG.TO]
Minefinders (MFN) [MFL.TO)
Richmont Mines (RIC)
Sino Gold (SIOGF.PK) [SGX.AX]
Yamana Gold [AUY/YRI]

You might add to that list a couple that are sitting on huge ore bodies and will be in production in two years or so: Crystallex (KRY) and Aurelian [ARU.TO]. For the best pure exploration play I like U.S. Gold Corp (UXG). And for pure silver I like Silver Wheaton (SLW). I also like a couple other silverminers, but this is a list of eighteen (18) that I think will do well in 2007 based on professional management, ore in the ground or growing profits.

It’s a big list, but, barring any significant discovery, a solid price run in one of them might be sold and replaced by another. This is a list that has to be managed.

One from the list that I like very much is Yamana, which starts trading on the NYSE today. But I am expecting CEO Peter Morrone to stay on the acquisition trail, which means dilution. In addition, Peter, who tells a great story, usually has this stock well-priced via promotion, so there is always risk of disappointing results. So, for me, my finger is always close to the sell button on that one.

Here is a list from BMO Research with 2007 estimated earnings based on a gold price estimate (unstated) of, I believe, US$605.

My opinion, which is clearly above most of the crowd, is that the average gold price for 2007 will be US$700, which would push these earnings estimates higher.

Addendum: Ok, since you are asking, I do like Kinross (KGC) [K.TO] and Pan American Silver (PAAS) [PAA.TO] too, on the basis of earnings growth for 2007. There; that's 20 precious metal stocks. I could go on, but I have to cut it off.

Comments

[Sufiy:]

Most OZ in the ground that will count in New Wave UP in Gold Bull

SST.v SRLM.ob MGN ASM.v

New Cu Discovery in Argentina:

sufiy.blogspot.com/200...

2007 Jan 14 07:57 AM

[cbelitz:]

The article said, "You might add to that list a couple that are sitting on huge ore bodies and will be in production in two years or so: Crystallex (KRY) and Aurelian [ARU.TO]." I'm surprised that Banro (BAA) wasn't included with Crystallex (KRY) and Aurelian (ARU). BAA sits on huge ore bodies and may be in production in two years. Any thoughts?

2007 Jan 14 10:04 PM

[Jeffrey Todd_:]

rystallex International Corp (KRY), is a small gold miner based in Canada with current interest in Venezuela. It has been holding permits to mine over 13 million ounces of gold in the Las Cristinas property. But these permits have been wilting in the midday sun.

This stock's future rests entirely on the fickle economic shoulders of Hugo Chavez. Crystallex has the initial permits but is still waiting and waiting and waiting on the environmental go ahead. The NAV has flat lined around 2.70-3.50 for over 3 months, kept there with nothing but hope.

The current political environment has made this stock a day trader's dream. The term, (rocking chair), a stock rocking +/- due to non-internal pressures, allows one to profit many times a day.

Should the environmental and Chavezamental permits be granted, Crystallex will definitely takeoff. But, environmental attitudes are presently in chaos down there. Changes in cabinet, pressure from locals, and generally unpredictable decision making, have stalled the ongoing process. But this stall has kept the stock where it is at and not significantly lower.

If Chavez grants the environmental permits and allows foreign economic interests to displace the local "cottage industry", ie squatters, displace hill sides, and water sheds, the NAV should shoot up 3-7 Dollars, (85% +), overnight.

But before the champagne dries from the shirts of leveraged investors and a few Fidelity fund managers, take your money and run. Why? Copper prices have sunk. This mining region requires copper to be sold to subsidize operations.

This is a very speculative holding and I would give it 2-3 months to play out. Make sure you have a stop-loss in place. I own this stock.





Note: The stock picks I review will include long or short positions as well as duration. I may not always update a position change if the time duration was accurate in the original review. Some of the stocks I review I own in my personal account and will always state such conditions. This site is not intended to replace one's own due diligence in researching stocks nor is it a substitute for advice from your financial planner.

Posted by Vestor22 at 15:21

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JESSE LIVERMORE
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JESSE LIVERMORE
A man does not have to marry one side of the market till death do them part.

2007 Jan 18 02:04 AM

[ritr54:]

I am surprised Northgate Minerals (NXG) wasn't on your list. Strong in copper and gold!

2007 Apr 16 02:35 PM