COMMENTARY — Choosing gold equity stocks

Gold equity markets throughout the Western world have all recorded strong performances since the inauguration of U.S. President Bill Clinton in mid-January. Leaving aside the reasons for our current bullishness on the gold price, it is interesting to consider how few good gold-producers have actually survived the ravages of the 5-year bear market.

While American Barrick, Newmont and Placer Dome obviously lead the ranks of the major producers, there are only another 13 companies with annual gold output exceeding 150,000 oz. A further dozen companies reported production in the range of 50,000 to 150,000 oz. last year.

Some of the junior gold-producers, most notably Glamis, Hycroft, USMX and Viceroy, have recorded strong price performances in recent months . . . The junior companies, like the majors, require the prospect of growth to achieve a strong market performance. Assuming the present upswing does not abort, it will not be long before a search for value begins in response to the ridiculous price/earnings multiples of yesteryear re-appearing among the seniors . . .

The North American gold-share market is essentially small; the rationalization of the industry, during the past few years, has precipitated a problem for specialist fund-managers in that the choice of suitable or attractive stocks has steadily shrunk.

Part of this problem has been resolved by the fact that South Africa is no longer the political pariah it was only a couple of years ago. In addition, the attractions of the Third World, now that the philosophy of communism has been totally disgraced, have increased enormously.

Major deposits are waiting to be discovered all over the Third World, but, as always, it is their potential, as opposed to the more practical problems of financing them into production, which attracts the attention of the entrepreneur.

From the Philippines to Suriname and from Guyana to Namibia, the nihilistic politics of yesteryear are giving way to the paramount need to find genuine wealth-creating mechanisms.

The concept of mining in the Third World is still greeted with considerable skepticism and, in reality, the “window of opportunity” may be a relatively short decade or two — until, that is, a renewed bout of nationalistic fervor returns to shun foreign investment.

–Analyst Peter Miller writing in

a recent issue of the Yorkton Natural Resources newsletter of Yorkton Securities.