-- =DJ CANADA TIP SHEET: Dynamic Funds' Gold Play --
By Brian Truscott
Of DOW JONES NEWSWIRES
VANCOUVER (Dow Jones)--Any precious-metals fund - especially one that's
Canada-based - is going to focus on gold these days and that's exactly what
Dynamic Funds' Precious Metals Fund has done.
"The mandate is to be invested primarily in precious metals, so we've got
under 10% in base metals and about 90% in gold and other precious metals -
silver, platinum and palladium," Robert Cohen, the fund manager, told Dow Jones.
"It's largely a gold fund, which is partly a function of the market
capitalizations out there - it's very gold-dominant."
He ascribes the weighting to gold's obvious value as a monetary asset in the
general economy; it's not simply a demand and supply story. However, given
current market conditions, he concedes that either argument is going to give
investors strong reason to take a look at gold investments at the moment.
"Being an open-ended fund, I'm going to mix it up with senior capped gold
producers, some mid-tier producers as well as some junior producers," Cohen
said. "And then there will be a combination of exploration companies, which
aren't typically part of a benchmark index."
The rationale for precious-metal investment is straight-forward - it's what
Dynamic describes as "fire insurance," meaning a commodity such as gold has -
historically - had a low or negative correlation to the rest of the mainstream
asset classes, such as stocks and bonds. Moreover, a 1% change in the price of
gold has led to about a 4% change in the price of gold securities.
Having said that, a few of Dynamic's investments in the C$335 million fund
have returned far more than that over the past year or so.
Let's take Aurelian Resources Inc. (ARU.V) as example number one. The company
- sitting on gold and copper assets in Ecuador - has been transformed into a
billion-dollar company. Cohen's fund is about 4.5% weighted to Aurelian, which
hasn't even issued an estimate for what it's got in the ground.
Aurelian Seen As Prime Takeover Target By Majors
"There's no official estimate from the company yet, but there's enough
information in the public domain to make a best-guess estimate," Cohen said.
He reckons that one of Aurelian's project zones could churn out 11 million
ounces of gold, though he's taken a conservative stance at around 8 million
ounces.
"If you're dealing with something that large, this becomes a takeover target
for a large miner," he said. "I think (early estimates) make it a very important
target for even the most senior miners out there, such as Barrick and Newmont."
Given the prospects of the company, either by mineral finds, production or
takeover, Cohen has a target price of C$48 - considerably above the C$35.80
stock price Thursday, which has already skyrocketed this year.
Of course, one of Cohen's largest gold-based holdings happens to be Glamis
Gold Ltd. (GLG), which is the subject of a multi-billion-dollar take-over play
by Goldcorp Inc. (GG). About 6.4% of Dynamic's precious metals fund is dedicated
to Glamis and Cohen plans to vote for the merger - something that has come under
some contention, given opposition by Goldcorp's ex-chairman and largest
individual shareholder, Robert McEwen.
Cohen said his key Glamis-based claim to fame is that he never bought shares
in the company; they were all accumulated as Glamis bought other companies on
its current road to being part of key global gold producer.
"I'll vote for the (merger)...because when you combine the market caps of the
two companies, you all of the sudden have a C$20 billion market cap, making it
the third-largest gold company in the world," Cohen said.
While he understands McEwen's arguments, given that the base-metal component
that a Goldcorp takeover of Glamis would generate, he said the largest gold
producers out there - Barrick and Newmont, obviously - have all acquired
non-core metals in their quest to become larger.
Two other companies that Cohen likes are Osisko Exploration Ltd. (OSK.V) and
Aurizon Mines Ltd. (AZK).
Cohen bought Osisko - its key asset is a Quebec-based gold project called
Malartic - when it was trading at 65 cents Canadian a share. That paper is
changing hands Thursday at C$5.35, meaning an eight-fold gain which looks pretty
good on the books. He reckons the company is sitting on a resource - again, best
estimate so far - of about 4 million ounces of gold but that additional
exploration could generate another 2-6 million ounces.
As for Aurizon Mines, the company is heading towards production with its Casa
Berardi gold project next month, which is also in Quebec. The company's initial
estimates for gold in the ground could be substantially increased over time,
Cohen said, with grades around nine grams per ton. The company has already
stated that production targets should exceed earlier estimates of 175,000 ounces
annually.
Given Aurizon's recent turbulent history, what with Northgate Minerals Corp.'s
(NXG) aborted takeover attempt, it's likely that the company is already on the
radar screen for other majors looking to add inventory. What's more, Northgate's
standstill agreement ended Oct. 17. Cohen has a C$5 target for the company's
stock, which is trading Thursday at C$2.90.
Company Web Site: dynamic.ca
-Brian Truscott, Dow Jones Newswires; 604-669-1595;
brian.truscott@dowjones.com |
