A trend in the making — dividend paying gold stocks
Gold is in a bull market, says this Canadian analyst, and soon we will see gold stocks paying dividends. He has eight stocks to consider.
You don’t usually associate glitter with dependability and thrift.
But that may be just what we’re going to get in the next few years. And it will come in the form of many more gold stocks paying dividends.
Gold is in a bull market, says one long-time observer of Canadian investments, and we can expect gold mining shares to be profitable.
Writing in Investor's Digest of Canada, Mr. Carlyle Dunbar tells readers that the road ahead for gold is bound to offer different twists and turns. Yet there are sure to be profits in store.
Mr. Dunbar explains how gold stocks can go from explorers to income producers.
And he surveys the prospects for eight junior gold stocks.
Two different scenarios
“Pitfalls are hidden in every bull market,” cautions Mr. Dunbar, and the bull market for gold is no exception. There is going to be a bumpy ride.
Still, since the price crested above US$1,000 an ounce last October, it has stayed well above that once-magic line. It’s at $1,157 today.
There are two different scenarios that may play out with gold, says the analyst. In one, gold pushes past US$2,000 an ounce — and maybe all the way to $5,000 if some of the more assertive projections come to pass.
Or, it may find a more modest ceiling at $1,200 to $1,500 an ounce. In this scenario, the price would likely also fall back from time to time.
“Either way, gold mining shares will be profitable,” Mr. Dunbar states. “A super-high price will lift all gold shares to the heights, but will probably coincide with an inflationary or currency or credit crisis even greater than we have been experiencing.”
The more modest scenario, “probably in a deflationary economy, may not be all that sensational for capital gains,” he says. “It will, though, permit gold mines to pay dividends for years to come.”
Eight Canadian gold mining stocks currently pay dividends. These are familiar names like Barrick and Goldcorp. But now they are due to be joined by some up-and-comers. These eight juniors could be among them. Two of them stand out right now.
The greenstone belts
“The coming time when gold mining shares will generate steady dividend income results from the exploration boom, incited by gold’s long price rise,” says Mr. Dunbar.
New producers will emerge, most by exploiting former mines and existing gold mining camps. “If you want to find gold,” explains the analyst, “go where it has been mined.” In Canada’s north, that means the granitic “greenstone” belts that have proved their mettle in the past.
One major discovery has already been made by Rubicon Minerals (TSX-RMX) in the prolific Red Lake greenstone belt in northwestern Ontario. It is now deepening a mineshaft and should be in production — and paying dividends — in a couple of years, says the analyst. Rubicon is trading at $3.98.
Another stock Mr. Dunbar has added to his gold portfolio is Detour Gold Corp. (TSX-DGC). It should start open pit production at its property near Cochrane, Ontario by 2012. Indicated reserves are 8.8 million ounces, but the potential may be much greater. The stock is at $19.76.
North of Superior
There are six other gold stocks that are worth keeping an eye on, says this analyst. Two of them are working north of Superior on projects that are removed from the big mining camps.
Premier Gold (TSX-PG) is working on the old Hardrock mine near Geraldton and Beardmore. Working with a minority partner, it has uncovered two new gold zones. The company has several other properties spread around the north, one of which it is developing in conjunction with Goldcorp (TSX-G). This stock is trading at $4.19.
350 miles north of Thunder Bay lies Pickle Crow. PC Gold (TSX-PKL) has uncovered new orebodies in this old mine, and the gold values look solid, the analyst tells us. Its shares have risen in the past few weeks, breaking out of the “penny stock” range to trade at $1.66.
Biggest source in Canada
The single biggest source of gold in Canada is the greenstone belt that runs across the Abitibi region from Val d’Or, Quebec to west of Timmins, Ontario. In this region, four stocks capture Mr. Dunbar’s attention.
There are several large holdings covering long strike lengths of “favorable geology,” says the analyst. Alexis Minerals (TSX-AMC) has both a 10- and a 20-mile stretch in the area and is also re-opening a mine near Rouyn-Noranda. The stock stands at $0.32.
Alexandria Minerals (TSX/V-AZX) has several large holdings not far from those of Alexis. It is enlarging known gold mineralization areas. Agnico-Eagle Mines (TSX-AEM) recently invested $1.8 million in a private financing that gives it a 9.9 per cent interest in Alexandria. The shares of Alexandria trade at $0.26.
There are two more companies with smaller properties but promising exploration results. Nigold Mining (TSX/V-NOX) already has as much indicated gold on its Malartic property as three mines on the site produced in the past. It’s at $0.27.
Yorbeau Resources (TSX-YRB.A) has come up with some spectacular results on two former mines and a third gold zone south of Rouyn-Noranda. This stock trades at $0.21.
There is one possible obstacle standing in the way of future income from these stocks, Mr. Dunbar tells his readers in Investor's Digest of Canada. Takeovers by senior producers would nix the dividends, of course, although they would offer some instant gratification for shareholders.
On the other hand, he says, as these junior gold stocks need less money for exploration, “the cash flows will go to one place — dividends.”
In a bull market for gold, there are many glittering new possibilities.
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