Who's Benefiting from Soaring Gold Prices, and Why?

There is a growing chorus of analysts – and investors most likely – who feel that share prices of small cap gold companies do not adequately reflect spot gold, which climbed above $996 per ounce yesterday morning.

Bullion has soared more than $150 so far in 2008, and is up more than $340, or more than 50%, since last summer’s low. But very few of the smaller cap gold stocks have seen material movements in the past six months, Michael Curran at RBC Capital Markets said in a note. In fact, you have to look back to early May 2007 when gold was at $688 to find the 52-week high for many names, the analyst noted.

Who is getting all the love? Large-cap and more liquid names like Barrick Gold Corp. (ABX), Goldcorp Inc. (GG), Yamana Gold Inc. (AUY), Kinross Gold Corp. (KGC) and Agnico-Eagle Mines Ltd. (AEM). Even the streetTRACKS gold ETF (GLD) has done better than most juniors.

One of the reasons this may be happening is liquidity. “New investors into the sector typically look to more liquid names as their initial foray, thus favoring larger cap producers,” Mr. Curran said.

Concerns linked to rising costs may be another, since junior golds may be experiencing financing challenges. This can lead to higher-than-expected dilution, an increased reliance on debt, and a less-attractive profile in terms of potential takeovers, the analyst said.

But “the combination of neccessity and opportunity could result in industry consolidation,” he added, which may mean those junior golds with large resource bases get snatched up by larger producers.

Mr. Curran’s favorite juniors are Anatolia Minerals Development Ltd.(ALIAF.PK) (top pick), which operates in Turkey, Andean Resources Ltd. [AND/TSX] in Argentina, Banro Corp. (BAA) in the Democratic Republic of the Congo, Gold Reserve Inc. (GRZ) in Venezuela, Greystar Resources Ltd. [GSL/TSX] in Colombia, and Osisko Exploration Ltd. [OSK/TSX], which operates in Quebec.

Comments

[Jeremy Robbins:]

It's a matter of credibility. Many juniors are sitting on accumulated losses due to high costs, the political risks, electricity shortages and decrepid mines. One in particular comes to mind in terms of the shareholders being raped blind by a previous executive officer. This mining company DRDGold has the strange distinction of having cut production ten-fold at the same time shares in issue have increased almost ten-fold. It was on the brink of liquidation several times already, and they are currently positing a "possible dividend" in order to put lipstick on this pig. The current CEO says his board will evaluate whether to "reward shareholders with a dividend." Most burnt shareholders arent buying the bluff. They are saying show me the money, and maybe I'll buy --- maybe.

2008 Mar 14 08:44 AM

[pseydocyst:]

Gold companies are a tough sell. It's not like gold.
You could see it and recognize it for what it is.
Too many factors go in the stock price of these
mining companies. Too many of these stocks are
scams and the public are rightly very cautious about buying this. Unless you're an insider you're just gambling your money hoping the stock will go with the rise of gold. Better go to Las vegas. You'll have a better time there.

2008 Mar 16 04:53 AM

[whidbey:]

Juniors are "juniors" not just for their size and want of a record of performance, but also for their lack of attractiveness as investments. No investment is less transparent or more exploited than gold mining. I think that there is a 70/30 down side risk on every junior. Factor that into your investing before taking a position. ABX starts to look attractive.

2008 Mar 16 02:49 PM

[growthvalue:]

Denver, CO, March 17, 2008 (BUSINESS WIRE) - International Gold Resources, Inc. (IGRU News; Pink Sheets) today announced an update on its Cupixi Mining License application and the appointment of Nathan M. Longenecker as the Company's Vice President, General Counsel and Secretary.

Update on Cupixi Mining License

International Gold Resources, Inc. ("IGR") President and Chief Executive Officer Robert L. Dumont recently returned from Brazil where he visited the Company's exploration properties and met with the Regional Director of the Departamento Nacional de Producao Mineral ("DNPM") and other senior government officials regarding the status of the Company's Cupixi Mining License application filed in October 2007.

Mr. Dumont commented, "I return from Brazil very encouraged by the quality of our Brazilian assets, employees and contractors, and the support for IGR and its mining license from the Brazilian Government. The DNPM has asked that we address some minor technical comments to our original license submission. That work is already underway and I expect it will take us approximately 60 days to complete. Based on my meetings with the DNPM and other senior government officials, I believe we continue to have a clear path to receiving our license in the near term."

Mr. Dumont went on to say, "I also toured each of our exploration properties and continue to be very excited by our Cupixi manganese project as well as our gold properties at Cupixi, Lourenco, Cassipore and Cachoeira. As we discussed on our investor conference call, we are nearing completion of our comprehensive data review on our Brazilian gold properties and expect to release that information as well as results of our 2007 Yukon exploration program shortly."

Appointment of Mr. Longenecker

Finally, the Company has appointed, on a part-time basis, Nathan M. Longenecker as the Company's Vice President, General Counsel and Secretary. Mr. Longenecker is a founding partner of Temkin Wielga Hardt & Longenecker LLP, a Denver-based law firm with particular expertise in representing clients in the natural resource industry in both domestic and international matters. Mr. Longenecker grew up in Edmonton, Alberta, Canada. He received his undergraduate degree from Colorado College in 1990 and his Juris Doctorate degree from the University of San Diego School of Law in 1994 where he was a member of the Order of the Coif and the San Diego Law Review. He is a member of the Bar of the Courts of Colorado and the Ninth Circuit and Tenth Circuit Courts of Appeals. Prior to co-founding Temkin Wielga Hardt & Longenecker LLP in 1999, Mr. Longenecker practiced law at the national law firms Dorsey & Whitney LLP and Ballard Spahr Andrews & Ingersoll LLP.

Mr. Dumont said, "I am extremely pleased that Nathan has agreed to join IGR. His background and significant experience representing multinational resource companies make him a great addition to our team as we progress our asset portfolios and grow our Company."

2008 Mar 17 01:52 PM