INVESTMENT COMMENTARY — Junior golds offer growth potential

With the price of gold floating between US$380 and $390 per oz., many investors are casting about for ways to maximize their return with a minimum of risk.

One approach is to buy shares in companies that offer exceptional growth potential, such as junior gold producers.

In a recent report, Don Poirier, a mining analyst with McDermid St. Lawrence Chisholm, assesses 10 such companies. They include Aurizon Mines, Campbell Resources, Canyon Resources, Eldorado, Golden Knight Resources, Great Lakes Minerals, Rea Gold, Richmont Mines, USMX, and Wheaton River Minerals. (All, with the exception of NASDAQ-listed Canyon, trade on the Toronto Stock Exchange.)

Poirier’s criteria for select-ing these North American-based companies include gold production of up to 100,000 oz. per year; security of reserves; and visibility within the investment community.

Several of the companies are expected to experience a boost in earnings as a result of expanding production, among them Campbell, Canyon, Eldorado, Golden Knight, Rea Gold and USMX.

Some of the group — most notably Campbell, Eldorado, Golden Knight, Aurizon, Great Lakes and Wheaton River — should enjoy substantial cash flows, which bodes well for expansion plans. Poirier expects Campbell, Eldorado and Golden Knight, in particular, will generate cash flows in excess of $8 million per year, while the other three will generate in the order of $5 million.

Aurizon, Eldorado and Golden Knight are projected to have the lowest cash operating costs, at less than US$225 per oz., whereas the average for the group of 10 companies is US$255 per oz.

Poirier concludes that each of the 10 companies offers better-than-average potential for capital appreciation. Aurizon, Eldorado and USMX are cited as offering the best overall value and, therefore, are recommended as core holdings for any junior gold portfolio. He regards Campbell, Rea Gold and Richmont as comparatively weak buys and the remainder as more or less neutral.