John Ing, Maison Placements, likes Newstrike
Author: John Ing
John R. Ing
Maison Placements Canada
130 Adelaide St. West – Suite 906
Toronto, Ont. M5H 3P5
(416) 947-6040
full article here:
We believe that the lagging of performance of the gold stocks will end, because not only do they provide a cheaper and leveraged way to accumulate reserves in the ground, but supplies are diminished. South Africa once the world’s largest producer, produced less gold again. In addition, there are fewer mega-deposits discoveries which we believe will go to a premium. Finally gold miners who are equally frustrated by the lack performance have boosted their dividends in order to attract investors. Some of the big cap names are even trading at 10 to 12 times next year’s earnings and now could be considered “value” investments.
Recommendations
Heavyweight Barrick’s $7.3 billion acquisition of Equinox Minerals caused a brief sell off in the gold index, but investor reassessment of the deal caused a rebound in the index. In the last quarter, here has also been a slew of merger and acquisition activity from Northgate making a $370 million acquisition to IAMGold’s acquisition of Avnel’s Kalana project in Mali to Rob McEwen’s merger of US Gold and Minera Andes creating a mid-tier silver producer. We believe that the rising gold price will encourage more gold mining acquisitions as the industry continues to consolidates further in the quest for growth. However, the senior producers are stuck on a treadmill with difficulties replacing reserves. Ounces on Bay Street are cheaper than the drill bit. And with the capital cost of building a mine in excess of one billion dollars, buying development deals at $1,000 an ounce is not so risky anymore. Meanwhile, the big sovereign funds and hedge funds are in competition with the gold producers for the few remaining development plays. We remain convinced that Detour Gold, Guyana Gold Fields, Osisko, Continental Gold and silver players Excellon and MAG Silver are takeover candidates. Indeed, the Yukon is experiencing another gold rush and this summer’s drill program should make a lot of news. Ryan Gold has a portfolio of more than eleven separate projects covering almost 300,000 hectares in the Yukon, making it one of the largest players. The Company completed a $50 million plus financing and prospector Sean Ryan vended his company into Ryan. We also expect the junior producers to have better upside partially due to exploration and growth in reserves and production. We like Aurizon, Centamin in Egypt, St. Andrew Goldfields, Newstrike and South American Silver prospects at current levels.
