By Gerry Greer, Guest Editor
Gold is a trade on fear, your own fear and the fears of others. As such, gold and everything of gold is only a trade, never a buy and hold forever. Gold cannot buy you a round of golf, a ski pass or a loaf of bread; you must first convert it to dollars. If you hold gold and anything of gold it is out of fear for the safety of the economy in the future, or someone gave you a gift out of friendship or love.
Face your fears; you will become a better trader, not a bag holder. The gold sector is a great sector for traders because fear is rampant. Read the gold editorials, there is no shortage of doom and gloom, and there is no shortage of an audience buying in. Make the fear of others your strength. Pay attention to the fundamentals of the property and the technicals. Take profits when you feel it appropriate and redeploy in areas where the fundamentals are sound and the technicals indicate relative weakness, which translates into relative better value.
A recent Goldcorp (NYSE:GG) trade can give us some insight into whether or not a company is a takeover target. Goldcorp recently sold its 38.6 million share stake in Osisko (OSKFF.PK) for $13.75 per share.
"The sale of our investment in Osisko highlights Goldcorp's continued success in redeploying internal capital from non-core assets to fund our leading growth profile," said Chuck Jeannes, Goldcorp president and CEO.
If Goldcorp is redeploying capital what should you be doing? Taking action based on Goldcorp’s lead is not inappropriate, nor is it a sale based on fear.
As indicated in the chart, Osisko has had an excellent run over the last two and a half years so taking some profit is not a bad idea. Goldcorp released the news of its sale on February 8; OSK had a trading range of $13.98 to $14.42 that day, with a close of $14.16. Osisko’s market cap was approximately 5.3 billion on the day of the Goldcorp news release, this translated to about $450/ oz in the combined proven and probable resource and measured and indicated reserves categories combined. OSK has 8.97 million oz proven and probable with 2.23 million oz indicated reserves for a global total of just over 11 million oz in the Canadian Malartic property. The Malartic property will start production this year. OSK has an additional 7 million inferred oz mostly at its exploration property in Ontario.
A comparative buy if one was selling OSK to consider would be Detour Gold (OTCPK:DRGDF). DGC has a market cap of just over 3.3 billion on a fully diluted basis. DGC like OSK is also an open pit operation in the Abitibi greenstone belt. The DGC mine is also under construction with production to commence in 2013. The DGC is in North Eastern Ontario while OSK is in Quebec. DGC has an updated resource of 14.9 million oz with a global total of 20.5 million oz inclusive with mineral reserves. DGC has an additional 5.1 million oz in the inferred category. Based on the global resource of 20.5 million oz the translated value per oz is approximately $163/oz. This represents good value for current shareholders and future suitors alike.
This is a good opportunity for a trade, some profit taking and a repositioning for a future takeover.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.