Gold has fallen from over $1,300 in mid-August to around $1,210 per ounce as of October 21, dragging many gold-related stocks down with them. Steve Todoruk joined Rick Rule at Sprott Global Resource Investments Ltd. in 2003. Should cautious investors steer clear of the sector for now? Or is this an opportunity to buy gold stocks? In a recent note, Steve weighed in:
While gold has gotten cheaper in recent weeks – partially because of US dollar strengthening -- the stock prices of many major miners and small juniors are holding well above their lows of December 2013.
In my view, we are seeing the ‘higher lows’ that we would expect in share prices as we move out of the bear market and into a potential bull market. To the disappointment of many investors, this gradual rise is not the sharp upturn out of a three-year bear market, but rather a slow, frequently-interrupted climb.
For the junior mining stocks, as of October 2nd, Virginia Gold Mines stands around $12.30 (from $11.60 on December 20)2, Mag Silver is at $7.40 (from $5 on December 20)3, Rubicon Minerals Corp. is at $1.30 (from near $0.75 on December 20)4, Premier Gold Mines is at $2.70 (from $1.30 on December 20)5, Detour Gold is at $8.60 (from $3.80 on December 20)6 and Roxgold Inc. is $0.70 (was $0.42 on December 20)7. One reason many of these juniors are holding up is that some of them are potential takeover targets. A cash bid could come along and offer a payout to investors regardless of what happens to the price of gold – which explains why they have retained their value. Of course, not all companies that are potential takeover targets will do well in the coming months or year – and their performance this year is no indication that they will continue to rise.
Some of these companies were able to take advantage of strong prices earlier this year to raise significant amounts of cash in the equity markets. I believe those companies now stand to be better protected to the downside, and may benefit from the ability to spend money advancing their projects.
Mag Silver raised C$79 million in a raise that closed July 168, which may allow them to continue advancing their silver project in Mexico with their partner Fresnillo PLC. Rubicon Minerals raised C$115 million in a new issue completed on March 129, and Royal Gold agreed to contribute $75 million in a deal that closed February 1110. I expect that this will enable Rubicon to continue building its new gold mine in eastern Canada. Roxgold raised $29 million in a deal that closed on March 25 to continue working on their gold project in West Africa.11
Many of the bigger mining companies are also trading well above their levels from December 2013. Randgold is currently near $70 (up from around $60 on December 20)12, Agnico Eagle Gold Mines is at $30 (from $25 on December 20)13, Franco Nevada is near $48 (from under $40 on December 20)14, Tahoe Resources is over $20 (from $16 on December 20)15 and Royal Gold is over $65 (from $44 on December 20)16.
We would add that many of the above stocks are down from this years peaks such as Randgold which was $90 in July so it has fallen badly and is still heading south.
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