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Jon Case, Portfolio Manager, Sentry Investments
FOCUS: Precious Metal Stocks
Market Outlook:
- Gold’s recent sharp sell-off caught most investors by surprise.
- The sell-off appears to have been triggered by several factors, including potential sales from the Cyprus Central Bank, ETF outflows and outlook downgrades from some large investment banks,
- Gold has found a floor at current levels, with the price supported by strong physical demand out of Asia, as evidenced by high physical premiums and record imports into China in the month of April.
- We believe the excessive volatility in gold and rising equity markets will keep investors away from gold for the time being, so we expect it to be range bound before regaining its upward momentum in the latter half of the year, given that the drivers for gold, namely excessive liquidity and money printing, have not changed.
TOP PICKS:
Alamos Gold (AGI TSX)
- Alamos has one of the lowest all-in-costs in the space, making it a great defensive name with lower valuation volatility than other higher cost producers.
- The low all-in-costs of $750-$800/oz vs. the rest of the industry at $1,000-$1,400 results in a lot of Free Cash Flow coming out of Alamos, and that Free Cash Flow is more stable than that of other producers.
- We see Alamos poised to deliver FCF of $130 million in 2013 or $1.00 per share, yielding a free cash yield of 8.5 percent - An attractive level on a risk adjusted or quality basis.
B2Gold (BTO TSX)
- B2Gold is a mid-tier gold producer, with production guidance of 390koz this year at attractive costs of $630/oz . On an all-in basis we expect costs to come in at about $1,000/oz.
- What we like about B2Gold is there is growth, and it’s internally funded, and that growth is not reflected in the share price.
- When B2 deliver’s their growth pipeline we expect annual free cash flow potential of $320 million per year, a yield of 23 percent, making it one of the cheapest gold producers we can identify for free cash flow in the 2016 and beyond timeframe.
Osisko Mining (OSK TSX)
- Osisko operates the Malartic mine in Quebec, where the company has been ramping up production towards steady state, which is expected to be around 550koz/yr at cash costs of $700/oz.
- Two things have weighed on the share price as of late, a challenging commissioning / ramp-up period at Malartic, and the expectation of a mining tax review by the province of Quebec.
- The tax review is out as of last week, and the changes were perhaps not quite as bad as expected, and Osisko has finally starting to turn the corner operationally. The company reported strong numbers out last week, principally on the cost front with production of 106koz at costs of $804/oz, down from costs of $833 in the prior quarter
- The share price hasn’t responded as we would have expected, and it looks cheap at $4.00/sh, given we think fundamental value is closer to $7.00/sh
| Disclosure: | Personal | Family | Portfolio/Fund |
| AGI | N | N | Y |
| BTO | N | N | Y |
| OSK | N | N | Y |
PAST PICKS: This is Jon Case's first appearance on Market Call.
Fund Profile
Sentry Precious Metals Growth Fund
Performance as at: April 30, 2013
| | Fund | Index** |
| 1 Year | -39.66% | -36.54% |
| 3 Year | -13.64% | -13.81% |
| 10 Year | +12.16% | +6.11% |
**Globe Precious Metals Peer Index
Top 5 Holdings (From March 31/13 Filing on Website):
Rio Alto 11.8%
Argonaut Gold 8.13%
Allied Nevada 7.75%
Sandstorm 7.3%
Semafo 6.97%
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