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How to profit from the looming gold shortage

Greetings investors!

Goldbugs have long proclaimed that the world is running out of vast, easily-mined gold discoveries. That’s not news, I've been hearing it for years.

But when you hear average investors openly question how the big producers such as Goldcorp and Barrick can continue to grow (as I often do these days!) well, you begin to wonder.

Major gold companies are a clubby bunch. Conspiracy theorists believe they comprise an unofficial cartel (along with the central banks of the world) that controls supply and demand and pricing of the yellow metal, and some have even envisioned a future ‘Mad Max’ scenario wherein companies roam the world as marauders, engaging in desperate battles with their peers for a dwindling number of world class deposits.

I suppose the lawyers would be the chief beneficiaries of that scenario. However, another possibility is being suggested by some analysts: That gold miners will merely widen their production mix to include base metals, and especially copper, since the really lucrative discoveries are copper/gold porphyry deposits such as Goldcorp’s recently acquired El Morro project in Chile.

That one has proven and probable reserves of 6.7 million ounces of gold and 5.7 billion pounds of copper, plus the added advantage of being located in the easily mineable Atacama Desert. It’s all good.

Goldcorp is not planning on becoming a copper miner, or at least it hasn’t come out and said as much. The company has been quoted as saying it wants to keep its revenues from gold production above 75% of the total, and falling below that could affect its stock price because investors attach a premium to shares of gold producers above and beyond those of other metals miners. Even so, Goldcorp has stiff competition for El Morro, namely Barrick, which claims it had the right of first refusal on the project.

If we can expect more of this kind of thing, and I think we can, it makes sense for investors to seek out companies with prospective porphyry projects, or least those active in regions where copper-gold porphyrys are known to occur.  Most are concentrated in western South and North America (Chile, Argentina, British Columbia); Southeast Asia and Oceana; along the Pacific Rim of Fire (Grasberg in Indonesia, one of the world’s largest copper/gold mining complexes); the Caribbean; southern central Europe and the area around eastern Turkey; plus scattered areas in China, the Mideast, Russia, and the CIS states; and eastern Australia.

I’m betting on Chile, which has the greatest concentration of the largest copper porphyrys.

And as for companies, I’d say New Gold Inc. (NGD.AMEX, TSX) is worth looking into. They’ve got a 30% indirect interest from that El Morro deal with Goldcorp, and the stock is still at five bucks per share.

Be careful out there.


Disclosure: no position