Number Cruncher
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Monday, January 18, 2010 6:48 PM
Gold bull homes in on miners adding reserves

Shirley Won
The Globe and Mail


WHAT ARE WE LOOKING FOR?

What the pros are buying.

It's worth perusing the top securities of funds to get some ideas. You can find a list on a fund company's website after each quarter, or after each month in some cases.

This can be a good way to start your own research. Or, you might decide it's easier to invest in a fund. Today, we look at Sentry Select Precious Metals Growth at sentryselect.com.


ABOUT THE FUND

The $347.1-million precious metals equity fund is run by Kevin MacLean of Sentry Select Capital Corp. It posted an 85.4-per-cent return in 2009, and an average annual return of 24.7 per cent over five years.

Mr. MacLean invests in companies that have what he calls a “high wealth-creation yield. These are companies that are adding to their reserves and resources at very meaningful rates relative to the size of the company, and have a high cash-flow yield.” He shies away from miners during the construction phase because of concerns about things going wrong – from permit delays to cost overruns.

While the price of gold has retreated recently from its recent high above the $1,200 (U.S.) per-ounce range, he is still “bullish for several years.”

The gold market does not need a weak U.S. dollar to rise because the supply of gold has been declining for a decade now, he suggested.

“This is a commodity, which has had a persistently declining supply, and now the central banks have backed away from selling it. We are at the lowest level of supply in at least 15 years.”


WHAT DID WE FIND?

The top 10 mining stocks have retreated from their 52-week highs, but are still well above their yearly lows.

Red Back Mining Inc. has “come a long way, but it is a quality name,” he said. “They have demonstrated very prospective geology at their operating mines in West Africa, and the ability to add large amounts of gold through modest drilling programs … I think it [stock] will be trading above and beyond $20 a share rapidly.” It closed yesterday at $17.71.

Semafo Inc., which mines gold in West Africa, is demonstrating the same potential as Red Back in increasing production, said Mr. MacLean, who has a target of $6 a share on the stock. “It has a very high cash yield from operations, and has very high prospects … of adding significant ounces.” Semafo finished yesterday at $5.06.

Golden Star Resources Ltd., a gold miner that also has properties in West Africa, has had some operating difficulties in the past that affected its balance sheet, but “they now have those problems behind them,” said Mr. MacLean, who has a target of $7 for the stock this year. The stock ended yesterday at $3.46.

“The company is now strong in cash flow, and as the cash builds up on the balance sheet, they now have the ability to go out and explore more aggressively … to expand reserves meaningfully.”

Top 10 holdings for Senry Select Precious Metals Growth to Dec. 31
Company	Ticker	$ Price Jan. 15	52-wk high $	52-wk low $	% yield	P/E	Market cap ($-mil)	Volume	% of net assets
Semafo Inc.	SMF-T	4.95	5.03	1.39	0.0	29.1	1,241.0	4,080,917	18.17
Red Back Mining Inc.	RBI-T	17.45	18.33	6.28	0.0	38.8	4,028.3	1,127,339	10.55
Golden Star Resources Ltd.	GSC-T	3.50	4.59	1.21	0.0	0.0	828.6	869,161	9.04
Alamos Gold	AGI-T	13.53	14.20	7.25	0.0	28.8	1,472.3	318,496	6.95
Yamana Gold Inc.	YRI-T	11.83	15.00	7.31	0.3	24.1	8,674.3	4,631,333	6.75
Jaguar Mining	JAG-T	13.15	14.18	4.90	0.0	54.8	1,042.0	258,106	6.10
Allied Nevada Gold	ANV-T	15.92	16.99	4.28	0.0	0.0	1,167.7	135,540	4.64
Iamgold Corp.	IMG-T	17.01	21.95	6.62	0.4	113.4	6,260.0	2,262,771	4.63
Aurizon Mines	ARZ-T	4.73	6.24	3.33	0.0	36.4	751.8	542,361	4.18
Osisko Mining	OSK-T	8.53	9.24	3.05	0.0	0.0	2,423.1	1,555,944	3.59
Source: Globe Investor, company

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