Freedom Lawyers of America

By Thom Calandra, CBS.MarketWatch.com
Last Update: 12:30 PM ET Sep 23, 2002
NEW YORK (CBS.MW) - Executives from some of the world's most successful gold companies say they expect further gains for the metal.

The gains could come in the next several months, as a confluence of events shakes investor faith in traditional investments such as stocks, bonds and currencies.

Speaking at the New York Institutional Gold Conference Monday, CEO Robert McEwen of Goldcorp (GG) said, "We believe gold is money and that we can defer taxes by holding back gold and selling at higher prices."

Goldcorp is one of the most profitable gold companies, with a vast deposit of bullion at Red Lake Mine in Canada. The company is essentially purchasing a portion of the gold it mines in a strategy that is directly opposite of the forward-selling of bullion by many major miners around the world.

"Hedging is the toxic waste dump of the industry," said McEwen, whose Goldcorp manages 67 percent gross-profit margins because of the rich grades of ore it mines. One 82-pound rock pulled from the Red Lake mine clocked in at 7,284 ounces per ton, a phenomenal figure for the gold industry. Other, smaller rocks have come in at 11,000 ounces per ton.

With gold up almost 20 percent for the year, investor interest in precious metals is growing. The metal was selling for $322.90 in the spot market Monday, up $1. Some 3,000 people registered to attend the New York gold show, up sharply from recent years, said conference director Sandy Lawrence.

James Turk of GoldMoney.com, an electronic payment system that uses gold grams as its basis of value, said he expects some gold mining companies to consider issuing their dividends in the metal. One company, Iamgold (IMG), on Monday reiterated its desire to pay shareholders with gold.

Iamgold President Todd Bruce said the Canadian company has about $30 million in gold in its corporate treasury. Turk from GoldMoney said he expects other mining companies to consider using an online delivery method for dividends paid in gold.

The message coming from gold executives and the newsletter editors and fund managers who specialize in precious metals is that they expect gold to pierce $325 to $330 an ounce, a level that has repelled further advances thus far this year.

"I don't see $350 as a high," said Richard Sacks of Phoenix Advisory, a Chicago money manager who specializes in gold mining companies. "I see far higher." Sacks recommended a number of small gold companies whose shares have yet to take off, among them Crystallex International (KRY), which is sitting on a potential 20 million resource ounces of gold in Venezuela.

"We probably won't get through the year without gold going to the next level," said Robert Bishop, editor of Gold Mining Stock Report.

Eric Sprott, a Toronto manager who oversees about $800 million worth of assets, said investors almost certainly will see new ways to acquire gold, if the efforts of the World Gold Council and other groups are successful. Trade groups such as the gold council and merchant banks are working on plans to launch an exchange-traded fund for gold. The so-called ETF would work much like the Nasdaq 100 QQQs and other trusts that represent baskets of securities, only with its basis in gold.

"In the end game, you have to own gold, physical gold, in some shape, to be prepared for what the financial world has in store for us," said Sprott of Sprott Asset Management. Sprott owns 19 percent of a closed-end gold and silver fund, Central Fund of Canada, that trades on the American Stock Exchange.

David Williamson, a former mining engineer and commodities analyst from Shearson Lehman in London, said he expects gold to surpass $350 an ounce sometime this year. He, like many at the conference, pointed to stock-market turmoil, war talk in the Middle East and in India and Pakistan and a growing disbelief in the institutions in which investors have placed their faith.

Others were even more enthusiastic. "I think we're headed into a major bull market for gold," said John Brock of Brock Management Co. in Boston. "Thousands of dollars an ounce."

Many of the unhedged gold companies - those that do not use futures and other derivative devices to sell their production forward - were making a strong showing at the conference. Companies such as Gold Fields (GFI), Harmony Gold Mining (HGMCY) and Goldcorp have beaten larger, hedged competitors in their stock-market performance by margins of 75 percent and more in the past 12 months.

Companies that hedge their sales in an effort to boost income have all said they intend to reduce their hedge books, among them Barrick Gold (ABX), one of the largest. The industry acknowledges that the practice of hedging dilutes gold prices by adding to supply, mainly via lending of the metal among central banks, commercial banks and producers.

"Gold has been the best investment class for the last year and a half, and we have another eight years to go," said McEwen at Goldcorp.