Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Stocks Gaining Credibility

Commodities / Gold & Silver Stocks Apr 12, 2012 - 03:00 AM GMT

By: The_Gold_Report

Commodities

Best Financial Markets Analysis ArticleWhile gold equities continue to trail the gold price, junior stocks are gaining traction according to Doug Groh, co-portfolio manager and senior analyst with Tocqueville Asset Management. He believes investors should not let the market's risk aversion keep them out of a stock picker's market. The trick, Groh reveals in this exclusive Gold Report interview, is to pick managements, not jurisdictions.

Companies Mentioned: Abzu Gold Ltd. - ATAC Resources Ltd. - Bear Creek Mining Corp. - Detour Gold Corp. - Gold Resource Corporation - Osisko Mining Corp. - Randgold Resources Ltd.


The Gold Report: Doug, macro factors like the European sovereign debt situation, U.S. monetary policy and an economic slowdown in China drove the markets in 2011, with company fundamentals and stock valuations playing second fiddle. How is the Tocqueville Gold Fund mitigating these factors in 2012?

Doug Groh: We remain very positive on the dynamics of the gold market and are even more excited about the prospects for gold mining companies. We really are not taking a different path, other than sticking by our positions and seeking out good opportunities.

The market has been missing the tremendous margins gold mining companies have right now, despite rising production costs. The average gold price is up more than the cost increase over the past year, which has allowed for margin expansion throughout the industry.

TGR: The Tocqueville Gold Fund received the 2012 Lipper Fund Award for the best fund in the precious metal category for the three-year period ending Dec. 31, 2011. Congratulations. What is the fund's current value and how did it perform in 2011 compared with the Philadelphia Gold and Silver Index?

DG: As of March 28, the Gold Fund was at $2.24 billion and the net asset value per share was $69.88.

As far as performance goes, as of Dec. 31, 2011, we were down 15.85%, while the Philadelphia Gold Index was down 19.16%. So, we did a little better.

TGR: What do you at Tocqueville expect of the gold market in 2012?

DG: We are very optimistic. From our perspective, gold bullion is still very much under-owned and gold mining equities are very much under-appreciated and misunderstood.

There is a lot of risk aversion going on. Equity investors worry about operating costs and about the volatility in gold equities. They are concerned that the gold price has peaked.

These concerns ignore the margin expansion in the gold mining sector. They ignore that gold bullion is under-owned. They ignore that central banks have been significant buyers of gold for two years and will most likely continue to buy gold to diversify their reserves away from the U.S. dollar.

While gold is susceptible to movements in interest rates and in the U.S. dollar, the potential for a structural shift in people's interest in gold is very strong. In particular, demand in India and China has a long way to grow. Gold is a very important currency in the Asian market.

It is hard to say what the gold price will be at any given point in time. I still think it is headed to the $2,000/ounce mark in the next 12 months. But that is not the endgame for gold. It still has a long way to go.

TGR: When we talked in June 2011, gold had been outperforming equities for five months. It's 10 months later; did you imagine then that equities would still be lagging the performance of gold? How are you and your fund managers adjusting to that?

DG: I did not think gold equities would underperform as much as they have. I attribute it to risk aversion in the equity markets. Gold stocks are equities first and foremost. In addition, investors have very high expectations for gold mining equities and the companies have disappointed the market's expectations.

We are holding to our positions. This is more of a stock picker's market than for general exposure to gold mining equities. While the gold mining exchange-traded funds may serve a purpose, one can add value by actively managing a gold equity portfolio. That requires more due diligence and an understanding of what the companies are trying to do and what they have accomplished.

We focus on companies that are well financed and well managed, companies with track records for building shareholder value and that, importantly, have a very good asset base. We want to know: What resource is the company working from? What is it developing?

TGR: Does stock picking become harder when macro drivers move share prices more than the companies' fundamentals?

DG: In some regards it requires more patience. Stock picking is difficult. You have to look at the higher quality companies. Understand their strategies. Understand management's vision. It demands that you appreciate the assets they are working with. That requires talking with the companies, visiting their assets, observing what they are doing with those assets and staying in touch with their progress.

TGR: Last June, the Tocqueville Gold Fund was 35% vested in small-cap explorers and developers. Is that still the case or are you leaning more heavily toward companies generating cash flow and perhaps offering a dividend?

DG: We are shifting out of the junior explorers to some extent. We are not necessarily trading out of our positions, but our positions are now that much more advanced in terms of the companies' lifecycles. Thus, a greater percentage of our portfolio now is in developing or producing companies as opposed to explorers and discoverers. It is a natural evolution.

And, some of the larger companies have done a bit better than some of the smaller names. So, we have a percentage shift to the larger caps.

TGR: Are you more selective now, given that the price environment among gold equities has created so many bargains?

DG: It is interesting that, even though these companies produce the same product, their valuations are all over the place. Companies are valued differently for different reasons; they are getting different discounts for different reasons.

This means investors have a lot to consider. They have to understand each company and its situation: its capital needs, cash flow, capital structure, strategy and where it operates.

TGR: What advice would you give retail investors in today's environment?

DG: Investors have lots of choices for exposure to the gold mining sector. If they have the network and ability to gather and assess a lot of information, they can invest on their own. More power to them, they should.

An index fund is another approach. A third way is to invest in a diversified portfolio of well-known names that is covered by various investment banks. Both of these approaches can keep surprises to a minimum.

TGR: Are institutional investors like Tocqueville Asset Management more likely to set the terms of private placements these days?

DG: Compared with a couple of years ago, yes. Investors can have a greater input into how a financing is structured these days. Companies need capital and the markets are not quite as friendly to general equity issuance. That means management has to be more creative with financing projects. There is more of an open discussion between investors and management.

TGR: Where do you see pockets of investment opportunity in the gold space? You seem to be leaning heavily on royalty plays.

DG: The royalty companies have a very interesting model. They are diversified and have less asset exposure and capital commitment than some of the mining companies. I think this is a very profitable model in this environment.

TGR: What are some other opportunities for investors?

DG: Detour Gold Corp. (DGC:TSX) and Bear Creek Mining Corp. (BCM:TSX.V) might be considered. In the Yukon, there is ATAC Resources Ltd. (ATC:TSX.V).

Gold Resource Corp. (GORO:NYSE.A; GORO:OTCBB; GIH:FSE) is interesting in that it is issuing a gold dividend, which shows that companies are responding to investors' desire for return on shareholder value. Companies are trying to differentiate themselves from gold exchange-traded funds.

I think good opportunities remain for companies developing assets in the right part of the world. That may be West Africa, Mexico, eastern or western Canada, even Alaska.

TGR: Are you concerned about creeping nationalism today, given events in South America, and even more recently in Mali?

DG: Yes, nationalism is a bigger concern today. Nationalism can be expressed in many ways including higher taxes on companies, royalties or participating interests.

Nationalism is not surprising. The industry is very profitable. Jurisdictions recognize that and are trying to capture more of that value for their national needs. But some of those policies are so restrictive that they drive capital and foreign investment away. That is a concern for investors.

TGR: Does that mean you have steered away from certain jurisdictions?

DG: Yes, Venezuela and Bolivia come to mind. Russia presents tremendous opportunity, but we are concerned about governance and about how business is conducted there.

The Middle East and North Africa have interesting potential, but again, there are concerns.

TGR: Let us look at some of the positions in your gold fund. Randgold Resources Ltd. (GOLD:NASDAQ) has significant exposure to Mali, where a recent coup is creating instability. What is your current approach to Randgold?

DG: We are taking a wait-and-see approach; we have not sold. Actually, I see this as a buy opportunity. Randgold believes the situation is more politically and socially complex than the media may be portraying.

We believe that in a relatively short period of time the political instability in Mali will resolve itself. Randgold continues to operate its mines as it did during other political conflicts in the region. For example, during a civil war in Côte d'Ivoire, Randgold held on to its property and built a mine during the government transition.

TGR: You also have exposure to West Africa through Abzu Gold Ltd. (ABS:TSX.V), which owns the Nangodi gold play in Ghana. Initial results from the company's current drill program seem to indicate the potential for open-pit gold mining.

DG: Abzu has done initial exploration and drilling. It seems to be on to a deposit that deserves more attention. My sense is that the company has limited capital and will need to reassess its position in terms of making the most of its land position and resource base in Ghana.

TGR: You continue to hold a fairly large position in Osisko Mining Corp. (OSK:TSX). Now you have a position in Detour Gold, a similar story in the same part of the world. What can you tell us about Detour Gold?

DG: It is very similar to Osisko, in that as both companies build and derisk their projects, their market valuations should rise as the market appreciates their efforts. Both are meeting their goals and realizing success.

TGR: Osisko has been in production a little less than a year. Are you satisfied with its results?

DG: Basically, yes. We understand the design and engineering challenges a company can run into when it starts up a mine. Our understanding is that the deposit is performing better than perhaps was expected. The grades and recoveries are good. Osisko is producing gold, perhaps not quite at the level originally expected, but we can work with that. In the end, we think Osisko will have a very successful operation. Given the gold price and its production costs, the company should have this mine paid off relatively quickly.

We might be a little disappointed that the market is not giving Osisko the valuation we feel it deserves. I am not sure why. It is in a favorable jurisdiction. Its costs are not out of line. It is slowly meeting its targets. Maybe what concerns investors is that the ramp-up is not happening soon enough. But in time, Osisko should deliver the project as it intended.

TGR: Do you expect Detour Gold to have similar success?

DG: We anticipate that. Detour Gold will probably run up against similar issues. The project may not get the expected throughput initially, or recoveries might be a bit off. But management will make the necessary adjustments. In time, I anticipate management will deliver on its plan, with the typical hiccups along the way.

TGR: You have exposure to silver production in Mexico. Are silver and gold producers takeover targets?

DG: I suppose every company could be considered a target.

We see relatively small deposits with great potential in Mexico. Large producers are looking for deposits that can be scaled up. Witness Goldcorp Inc.'s (G:TSX; GG:NYSE) acquisition at Peñasquito some years ago. Or the numerous property/company transactions that have taken place since.

Scorpio Gold Corp. (SGN:TSX.V), Levon Resources Ltd. and Gold Resource are operating now. Some are generating cash flow. Yet, they have not fully explored their properties. There is significant potential to identify value where it is yet unrealized or unrecognized.

TGR: Overall, you seem pretty optimistic.

DG: You know a lot of these stocks performed quite well years ago when the gold and silver prices were much lower. Companies were raising capital to build out their mines or expand operations. In one regard, company valuations were higher than they are now. That makes me ask, what is wrong with a market that does not recognize companies like Osisko and Detour that we believe will deliver?

I think the outlook is very good for precious metals and, in particular, for gold mining equities. Maybe it is time to turn the corner into Q212 and think about a new story, to let gold mining equities come into their own as the year progresses.

TGR: Doug, thank you for your time and your insights.

Doug Groh has 25 years of investment experience. Before joining Tocqueville in 2003, he was director of investment research at Grove Capital from 2001–2003. Between 1992 and 2001, as a senior sell-side analyst for JP Morgan and Merrill Lynch, he was recognized as a ranked analyst by Institutional Investor Magazine and The Wall Street Journal for his coverage of basic material stocks in the non-ferrous metals, chemicals and paper and packaging industries. He began his career as a mining analyst and worked as a precious metals portfolio manager at U.S. Global Investors and American Express Financial Advisors in the 1980s and early 1990s. He holds a masters in energy and mineral resources from the University of Texas at Austin and a Bachelor of Science degree in geology/geophysics from the University of Wisconsin–Madison.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

DISCLOSURE:
1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Detour Gold Corp., Abzu Gold Ltd., Goldcorp Inc., Scorpio Mining Corp. Streetwise Reports does not accept stock in exchange for services.
3) Doug Groh: This article reflects my views as of the date or dates cited and may change at any time. The information should not be construed as investment advice. No representation is made, nor is there any guarantee that any projection, forecast or opinion will be realized. References to stocks, securities or investments in this writing should not be considered recommendations to buy or sell. Past performance is not a guide to future performance. Securities that are referenced may be held in my personal portfolio or in portfolios managed by Tocqueville or by principals, employees and associates of Tocqueville, and such references should not be deemed as an understanding of any future position, buying or selling, that may be taken by either me or Tocqueville. I personally and/or my family own shares of the following companies mentioned in this interview: Tocqueville Gold Fund. I personally and/or my family are paid by the following companies mentioned in this interview: as an employee of Tocqueville Asset Management. I was not paid by Streetwise Reports for participating in this story.

Streetwise - The Gold Report is Copyright © 2012 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

 

The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

 

From time to time, Streetwise Reports LLC and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

 

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

 

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

 

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

 

101 Second St., Suite 110
Petaluma, CA 94952

Tel.: (707) 981-8999
Fax: (707) 981-8998

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in