A passport to the mining stocks of Quebec
Studying the world’s mining regions, this U.S. advisory finds the best of them all right here in Canada, and discusses several favourite stocks.
Those who follow mining stocks must be prepared to grab their passports and travel to any corner of the globe.
One of the most productive corners of the globe is this one. Canada.
In its latest issue, a leading U.S. advisory on junior mining stocks journeys to what it calls “one of the best mining jurisdictions in the world, if not the best.”
It is Quebec. Doug Casey’s International Speculator calls it a “Diamond in the Crown.”
Some Quebeckers would not be thrilled with the “Crown” part of the designation, but the province’s mineral resources do shine in a world hungry for raw materials.
In fact, in some ways the Quebec mining scene is hotter than ever.
We’ll see what gives Quebec such a high ranking in the opinion of this advisory and which stocks it likes. There is one in particular that has captured its attention and that of many investors in the past year or so.
The core of the economy
Having looked at many distant lands, writes Mr. Andrey Dashkov for the advisory, it’s time to stay closer to home in “mine-friendly Canada.”
As Canada’s second largest province, he tells his largely American readership, “Quebec shares many of the common features of the country’s economy as a whole.”
As a highly developed region, it counts on services for 70 per cent of its GDP. Aerospace and transportation, IT and robotics are strong contributors to the economy, he adds.
But the core of Quebec’s economy is still the mining industry, a source of raw materials for Canada’s manufacturing and high-tech businesses and for many similar businesses around the world.
What’s more, Quebec has been named the top mining jurisdiction in the world for the past two years by the very stringent Fraser Institute. The legal climate and the very friendly tax regime work in the industry’s favour, says Mr. Dashkov.
The only possible monkey wrench, in this advisory’s view, may be a Quebec government that takes a more environmentally friendly stance.
A girl named Clothilde
Lead, zinc and silver were spotted in the Abitibi-Temiscamingue region as early as the 17th century, says Mr. Dashkov. But mining in Quebec did not really get started until a girl named Clothilde Gilbert found a gold nugget “the size of an egg” in the Beauce region.
Discoveries of copper, sulfur and asbestos followed, and by the 1920s Quebec was one of the prime mining areas in Canada.
The crunch of 2008 took a bite out of mining exploration in Quebec, as it did everywhere else. Exploration and development budgets quintupled between 2001 and 2008, only to fall off sharply in 2009.
The author notes, however, that gold production increased in 2009, coming in at $976 million on the heels of $824 million in 2008.
The top dog
Mr. Dashkov supplies a chart of the ore bodies across the province. One stands out.
“The top dog, we’re happy to say, is in our portfolio.” This is Osisko Mining’s (TSX-OSK) flagship Canadian Malartic gold project, which has by far the highest precious metals content of any property in Quebec.
This deposit was recently upgraded to 8.97 million ounces of proven and probable gold reserves.
That upgrade appeared in its first-quarter results, released last week. Also announced was an increase in profit, largely based on a tax recovery and favourable foreign exchange, and a friendly takeover bid for Brett Resources (TSX/V-BBR) and its big Hammond Reef gold project near Thunder Bay.
Osisko has risen about as steadily as a junior mining stock can. A year ago, it traded at $5.46. Today it is at $10.65 (there is no dividend).
Just the beginning
Even though exploration was down in 2009, Ontario was the only province that spent more than Quebec. Drilling costs per metre fell, which helped to offset the reduced budgets. We will surely see more drilling this year, the author says, and all that exploration “is starting to bear fruit.”
In addition to Osisko, the advisory has another Quebec miner in its portfolio. Despite its name, Virginia Gold (TSX-VGQ) is not found in Robert E. Lee’s home state, but is based in Quebec City.
Its Eleonore gold deposit, like Osisko’s Malartic, produced “high multiples on our investments,” says Mr. Dashkov, and this is “just the beginning.” Virginia’s stock has also moved up. From $3.49 last June it has risen as high as $8.60 and is now at $6.97. It does not pay a dividend.
Many of the biggest deposits in Quebec are in the hands of the majors. The two most familiar names are Goldcorp (TSX-G) and Agnico-Eagle Mines (TSX-AEM). Goldcorp, which has a big stake in Eleonore, trades at $44.40 and yields 0.4 per cent on its 18-cent dividend. Agnico is at $65.12 and yields 0.2 per cent on a similar dividend of 18 cents.
A little further down the gold chain are IAMGold (TSX-IMG) and Inmet Mining (TSX-IMN). The former trades at $18.25 and yields 0.3 per cent on its $0.35 dividend. Inmet is at $52.32 and yields 0.4 per cent on its dividend of $0.20.
The big deposit holders include two smaller stocks. Richmont Mines (TSX-RIC) is trading at $4.32, and Century Mining (TSX/V-CMM) is in penny stock territory at $0.68. Neither is a dividend payer.
While the well-known majors like Goldcorp and Agnico hold the majority of the deposits in Quebec, they will need to replace their depleting resources, says the author.
It is “far more economic do so in the neighborhood,” he adds, “so we’re watching Quebec’s smaller companies for takeover potential.”
As far as he and his colleagues are concerned, the best mining opportunities in the world may be popping up right in our own backyard.
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