For a variety of well documented reasons, gold shares have lagged behind the performance of the yellow metal, which continues to breach new records as markets focus on the U.S. debt ceiling talks.
The reasons often cited include competition from gold ETFs and concern that gold is trading in a bubble that will pop when the inevitable compromise is reached in U.S. debt talks.
But in a July 21 report, veteran Canadian gold bug John Ing says he is confident that this situation will not continue for long.
“We believe that the lagging performance of 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,’’ said the President of Maison Placements Canada Ltd. in Toronto.
Confident that gold will trade at an average of US$2,011 an ounce this year, Ing said valuations will benefit from the fact that South Africa – traditionally the world’s leading producer – is producing less gold and new mega-discoveries are becoming few and far between.
Some gold companies have moved to give the sector a lift by boosting their dividends in order to attract investors, Ing said.
They include Barrick Gold Corp. (TSX: T.ABX, Stock Forum) and (NYSE: ABX, Stock Forum), Goldcorp Inc. (TSX: T.G, Stock Forum) and (NYSE: GG, Stock Forum), and Agnico-Eagle Mines Ltd. (TSX: T.AEM, Stock Forum) and (NYSE: AEM, Stock Forum).
“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,’’ he said.
Meanwhile, Ing remains convinced that a number of companies are takeover candidates. They include:
Detour Gold Corp. (TSX: T.DGC, Stock Forum)
Guyana Gold Fields Inc. (TSX: T.GUY, Stock Forum)
Osisko Mining Corp. (TSX: T.OSK, Stock Forum)
Continental Gold Ltd. (TSX: T.CNL, Stock Forum)
Excellon Resources Inc. (TSX: T.ESN, Stock Forum)
MAG Silver Corp. (TSX: T.MAG, Stock Forum)
Ing also sees upside among the junior producers. This is due to the impact of exploration and resulting growth in reserves and production. In this segment of the market, Maison Placements likes Aurizon Mines Ltd. (TSX: T.ARZ, Stock Forum), Centamin Egypt Ltd. (TSX: T.CEE, Stock Forum), St. Andrew Goldfields Ltd. (TSX: T.SAS, Stock Forum), Newstrike Capital Inc. (TSX: V.NES, Stock Forum) and South American Silver Corp. (TSX: T.SAC, Stock Forum).
Still, Ing is disappointed with the lack of news or timely updates from East Asia Minerals Corp. (TSX: V.EAS, Stock Forum), which is exploring for gold and copper in Indonesia and has seen its stock price tumble to around $2 from over $8 at the start of this year.
He was referring to the Miwah project in northern Sumatra, which hosts a NI 43-101-compliant inferred resource of 3.14 million ounces of gold and 8.95 million ounces of silver. Current estimates, he said, are in sharp contrast to euphoric expectations of 10-15 million ounces.
“East Asia announced a $10 million bought deal which should allow them to expand the Miwah deposit,’’ Ing said. “However, we believe management has mismanaged everything from the drill program to shareholder communication to analyst contacts and unduly hurt local relationships.’’
On July 26, East Asia announced changes to its management structure, effective immediately. Michael Hawkins has resigned as CEO, President and director. He is being replaced by Darryl Clark, who will act as CEO and director. Alex Granger has been named President of the company.
The company said Hawkins will remain a consultant to East Asia during a transition period and will assist the company in identifying new early stage opportunities.
Ing described this week’s announcement as “a plus,” but said the company has a long way to go to regain the trust of investors.