Where investors go for expert sector-specific advice.
Streetwise Reports interviews John Stephenson- Senior vice president and      portfolio manager with First Asset Investmen...
Gold Stock Investors— Buy "Best of Breed": John StephensonWhen it comes to picking gold mining names in the current market...
Gold Stock Investors— Buy "Best of Breed": John StephensonThe Gold Report: As a portfolio manager and an author of two boo...
Gold Stock Investors— Buy "Best of Breed": John StephensonTGR: Are there any specific ones you think will do better than o...
Gold Stock Investors— Buy "Best of Breed": John StephensonJS: I think what youre seeing across the board in commodities is...
Gold Stock Investors— Buy "Best of Breed": John StephensonLook at Barrick Gold Corp. (ABX:TSX; ABX:NYSE). It recently acqu...
Gold Stock Investors— Buy "Best of Breed": John StephensonJS: Yes. There were several reasons why the low price dropped re...
Gold Stock Investors— Buy "Best of Breed": John StephensonJS: No matter what!TGR: Obviously, youre a precious metals bull....
Gold Stock Investors— Buy "Best of Breed": John StephensonThe situation for gold miners has really changed over the last, ...
Gold Stock Investors— Buy "Best of Breed": John StephensonThe situation for gold miners has really changed over the last, ...
Gold Stock Investors— Buy "Best of Breed": John StephensonTGR: Makes sense, although it is a moving target as things chang...
Gold Stock Investors— Buy "Best of Breed": John StephensonJS: Yes. Our view is that mining equities will outperform the me...
Gold Stock Investors— Buy "Best of Breed": John StephensonJS: In terms of relative size and scale, you dont get any bigger...
Gold Stock Investors— Buy "Best of Breed": John StephensonJS: I think thats the issue, and you have correctly identified w...
Gold Stock Investors— Buy "Best of Breed": John StephensonThe next senior I would highlight is Goldcorp Inc. (G:TSX; GG:NY...
Gold Stock Investors— Buy "Best of Breed": John StephensonJS: On the intermediate producers, with production in the 800 th...
Gold Stock Investors— Buy "Best of Breed": John StephensonTGR: And then Juniors?JS: In the junior producer category, there...
Gold Stock Investors— Buy "Best of Breed": John StephensonLastly, we like AuRico Gold Inc. (AUQ:TSX; AUQ:NYSE) with three ...
Gold Stock Investors— Buy "Best of Breed": John StephensonTGR: You probably look at a lot of other little companies that m...
Gold Stock Investors— Buy "Best of Breed": John StephensonTGR: What sort of strategy are you suggesting investors use this...
Gold Stock Investors— Buy "Best of Breed": John StephensonTGR: Are there any parting thoughts that youd like to leave with...
Gold Stock Investors— Buy "Best of Breed": John StephensonJS: I hope so.John Stephenson is a senior vice president and por...
Gold Stock Investors— Buy "Best of Breed": John StephensonWant to read more exclusive Gold Report interviews like this? Si...
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Gold Investment Interview with John Stephenson

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Streetwise Reports interviews John Stephenson- Senior vice president and portfolio manager with First Asset Investment Management Inc.

For more interviews of gold analysts and sector experts visit StreetwiseReports.com

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Gold Investment Interview with John Stephenson

  1. 1. Where investors go for expert sector-specific advice.
  2. 2. Streetwise Reports interviews John Stephenson- Senior vice president and portfolio manager with First Asset Investment Management Inc. For more interviews of gold analysts and sector experts visit StreetwiseReports.com Gold Stock Investors—Buy "Best of Breed": John Stephenson
  3. 3. Gold Stock Investors— Buy "Best of Breed": John StephensonWhen it comes to picking gold mining names in the current market environment, JohnStephenson, author and portfolio fund manager at First Asset Investment Management,believes that buying the "best of breed" is the way to go. In this exclusive interview withThe Gold Report, he explains his reasoning in light of how the current global economicenvironment is affecting prospects for the metals markets and valuations of miningcompany stocks. He also talks about his favorite picks in a range of three productionclasses and why he likes them.
  4. 4. Gold Stock Investors— Buy "Best of Breed": John StephensonThe Gold Report: As a portfolio manager and an author of two books, The Little Book ofCommodity Investing and Shell Shocked: How Canadians Can Invest After the Collapse, howdo you see the prospects for the resource commodities in 2012?John Stephenson: I think, in general, my prospects and outlook are very bullish. The storycontinues to be one of strong demand out of China. I dont see that story changing.Obviously, there have been a lot of headlines and the Purchasing Managers Index data inChina recently are not as robust as they were, but its economy is still going to grow at 8.5–9%. Thats pretty darn good. Thats really where demand for most of these commoditieswill come from. Certainly, any improvement in Europe and the U.S. will be good news forcommodities.
  5. 5. Gold Stock Investors— Buy "Best of Breed": John StephensonTGR: Are there any specific ones you think will do better than others?JS: Id have to say that oil will do very well. I think well see oil exit 2012 north of$130/barrel. Certainly, copper looks very strong. I could see that at $4.50/pound (lb) by theend of the year. Gold and precious metals will do well, also. Gold and precious metals arein a different category than the others, but, nonetheless, what I think is going to continueto drive that is Europe, and I think youll see $2,500/ounce (oz) gold.TGR: So in that light, I guess $4.50/lb copper isnt that far out of line, if youre expectinggold in the $2,500/oz range.
  6. 6. Gold Stock Investors— Buy "Best of Breed": John StephensonJS: I think what youre seeing across the board in commodities is very strong demand andweak supply. Nothing has happened that will improve that situation and the volatility wesee daily has only made the situation worse. Suppliers have struggled to keep up. Thesmaller, more marginal players have had trouble getting financing as the volatility hasincreased. The eventual supply response, which would normally end a bull market, isgoing to be a long time coming.TGR: In this recent semi-panic where gold dropped into the low $1,500/oz range andpeople were saying it was all over—youre certainly not a believer in that if yourepredicting $2,500/oz gold.JS: No. Im not a believer in it. Gold shares some characteristics with other commoditiesin terms of supply and demand. Over the last 40 years, the average grade globally wasaround 9.6 grams/ton (g/t). Its now around 1 g/t. So, were potentially facing a peak goldscenario as we may be in oil.
  7. 7. Gold Stock Investors— Buy "Best of Breed": John StephensonLook at Barrick Gold Corp. (ABX:TSX; ABX:NYSE). It recently acquired Equinox Minerals Ltd.(EQN:TSX; EQN:ASX), a copper miner. Thats how its struggling to find replacement goldreserves. It had no better idea than to buy a copper miner. This is typical across an industryfacing very challenging supply conditions.Gold is really taking on a different characteristic; it tends to be a commodity that is more ofa currency than a commodity. I see it going higher ultimately because the solution to whatails Europe will be the need for the European Central Bank to step in line and start to printmoney. Once we have that, youre going to see gold move higher. Whats kept gold down inthe last few months has been that the U.S. dollar and U.S. Treasuries have become safehavens. But how much worse can things get in the world when you have the 10-year U.S.Treasury trading below 2%?TGR: So youre pretty well convinced that weve seen the lows in the gold price?
  8. 8. Gold Stock Investors— Buy "Best of Breed": John StephensonJS: Yes. There were several reasons why the low price dropped recently. Fund managersfacing redemption requests looked around and said, "Well, this has probably been thebest-performing asset in my portfolio this year and maybe the last 11 years." They felt thatto meet these requests, they needed to sell. So there were a lot of things that werehappening that werent really related to gold or to the bigger story of what was happeningwithin Europe. We have an enormous amount of paper money out there being debased.And the solution for these debts really is to debase more of this paper money. In thatenvironment, people around the world are saying, "I want something tangible. I wantsomething real. I want something I can hold in my hand, store, put in the bank or under mymattress." And the demand is going to remain very strong. I dont see that changing.TGR: So regardless of how all these problems evolve, as far as youre concerned, gold isgoing higher, no matter what?
  9. 9. Gold Stock Investors— Buy "Best of Breed": John StephensonJS: No matter what!TGR: Obviously, youre a precious metals bull. Whats your preference among the equities,the physical metal and exchange-traded funds (ETFs)? Or is it a combination of all of them?JS: A combination makes sense. The reason people have held the equities is because theyget leverage to the gold price. So assuming that costs dont increase at the same rate as themetal itself increases, you get increasing earnings and, therefore, on a consistent multiplebasis, you get a higher share price and greater leverage to it.
  10. 10. Gold Stock Investors— Buy "Best of Breed": John StephensonThe situation for gold miners has really changed over the last, say, four to five years. If welook back, 12 or even 15 years ago, we saw that for the first three or four years of thatperiod, from early 2000–2004, the actual miners outpaced the metal by a three timesmultiple. Right now, evaluations have fallen so steadily for the miners that probably thesmarter bet is to look at the equities. Certainly, the physical metal has some storage andhandling costs associated with it. So I would say if you had to choose between the three,you would probably, at this point, look mainly to the miners, somewhat toward the ETFsand maybe hold a small amount physically for safekeeping.TGR: In your portfolio management business, what criteria do you consider in selectingcompanies for your funds?
  11. 11. Gold Stock Investors— Buy "Best of Breed": John StephensonThe situation for gold miners has really changed over the last, say, four to five years. Ifwe look back, 12 or even 15 years ago, we saw that for the first three or four years ofthat period, from early 2000–2004, the actual miners outpaced the metal by a threetimes multiple. Right now, evaluations have fallen so steadily for the miners thatprobably the smarter bet is to look at the equities. Certainly, the physical metal hassome storage and handling costs associated with it. So I would say if you had tochoose between the three, you would probably, at this point, look mainly to theminers, somewhat toward the ETFs and maybe hold a small amount physically forsafekeeping.TGR: In your portfolio management business, what criteria do you consider inselecting companies for your funds?
  12. 12. Gold Stock Investors— Buy "Best of Breed": John StephensonTGR: Makes sense, although it is a moving target as things change, and what onceappeared to be stable doesnt look so stable anymore.JS: Thats right. You cant just buy and hold. You have to keep following up.TGR: 2011 was a tough and disappointing year for a lot of investors considering what themetals did and the resource stocks didnt do. What are you expecting to happen this yearwith the mining equities? Are they going to finally catch up with the commodities price?
  13. 13. Gold Stock Investors— Buy "Best of Breed": John StephensonJS: Yes. Our view is that mining equities will outperform the metals in 2012 and that nowis a good time to be looking at the mining companies themselves. We think that thecommodity itself will be very strong because the Europe situation is coming to a head andwill be a catalyst to lift prices higher. The miners will play catch-up and multiples will gofrom compressing to expanding, or at least not compressing any further.TGR: You do quite a bit of research and have become quite familiar with a broad range ofcompanies in the mining development and production business. Can you talk about someof the ones you like, maybe starting with some of the seniors and working your waydown?
  14. 14. Gold Stock Investors— Buy "Best of Breed": John StephensonJS: In terms of relative size and scale, you dont get any bigger than Barrick. The stock istrading at less than 10x earnings, which in itself is phenomenal and less than 1x net assetvalue (NAV). It has better growth than Newmont Mining Corp. (NEM:NYSE), and its thelargest producer in the world. It has struggled, theres no question about it, but if yourelooking for a value play, something that is liquid, well managed and has very strong growth.Going with the largest in the industry at almost 9 million ounces (Moz) per year, you haveto look at Barrick.TGR: Barrick has gotten to be so big. Is it going to be able to grow internally or will it justhave to continue making acquisitions?
  15. 15. Gold Stock Investors— Buy "Best of Breed": John StephensonJS: I think thats the issue, and you have correctly identified why investors have been alittle skeptical on the name. At some point, things get cheap enough that you have tolook at it and give it some credit. Looking back over the history of Barrick, it had a hedgebook and much of its upside was hedged. Then as gold took off, people said it wasntgoing to get credit for it if it had the hedge book on it. So the hedge book was taken offand unwound. Then people said it needed to show production growth, which it did. Atsome point, when the chips are down, people are going to say, "Heres a company thatsdelivered." But, youre right. Its hard to see how it can become a 10–11 Moz producerfrom around 9 Moz and continue to replace reserves, particularly in a world of decliningore values. But, if you think that the world of investments is going to bounce all over theplace as the headlines out of Europe dominate trading, then I think you need to besomewhere where theyre printing money, and this is what Barrick is doing.
  16. 16. Gold Stock Investors— Buy "Best of Breed": John StephensonThe next senior I would highlight is Goldcorp Inc. (G:TSX; GG:NYSE). This is the thirdlargest gold producer in North America. Whats unique about Goldcorp is that itoffers a blend of things that are almost never found in one company. It has goodgrowth and great production diversity—not just producing from a single mine. Itsthe lowest cost major producer, with cash costs at roughly $550/oz. Typical industryaverage is closer to $875/oz. It has a strong balance sheet, and its operating inpolitically secure parts of the world. So the chance of expropriation is pretty low.And, its liquid. So we really like this.TGR: How about Intermediates?
  17. 17. Gold Stock Investors— Buy "Best of Breed": John StephensonJS: On the intermediate producers, with production in the 800 thousand ounces (Koz) to 1–1.5 Moz per year range, we like IAMGOLD Corp. (IMG:TSX; IAG:NYSE). It has a number ofmines around the world, largely in the Americas, but also in Africa. It has recently brought in anew management team, which is focused on really servicing value. It brought in someonewho is not from the industry but a turnaround expert, and its looking at really harvesting thisvalue. With its good mines and good operating profile plus a bent toward servicing value, thisname should move higher.Another intermediate that we like is Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE). It has anumber of mines in Finland, Canada and Mexico. This was a company that was a Streetdarling for many, many years. It probably has the best management team out there. It hashad a few stumbles lately. It actually closed one of its mines, Goldex in Quebec, and wrote offthe asset, so the stock has fallen because people have probably lost a little confidence inmanagements ability to deliver. It was essentially trying to bring on five mines in two yearstime, and thats really just too high an expectation. But at this price level, it has excellentgrowth and still is a name to look at.
  18. 18. Gold Stock Investors— Buy "Best of Breed": John StephensonTGR: And then Juniors?JS: In the junior producer category, there are two names I think are worth looking at. One isOsisko Mining Corp. (OSK:TSX), which is very quickly moving into the intermediates. Untilwe get robust global growth, a company that is going to make this transition very quickly isobviously desirable for that reason, if nothing else. Osisko is already producing from itsCanadian Malartic gold deposit in Quebec even though it just finished the original mineplan. Its already producing around 600 Koz/year and has some catalysts for growth. Onceyou start production, you see a re-rating in your shares. This is trading at a discount to itsjunior and intermediate peers in terms of a multiple basis, but we think that multiple willexpand as it continues to produce. It also has another property that gives it some optionvalue and some further upside.
  19. 19. Gold Stock Investors— Buy "Best of Breed": John StephensonLastly, we like AuRico Gold Inc. (AUQ:TSX; AUQ:NYSE) with three operating mines inMexico and two in Australia. It recently commissioned a new mine at the Young-Davidsonproject in Ontario. We think this is another company that has a very strong growth profileand has been a bit in the penalty box, but its really too cheap at this point not to belooked at. So we think this is a potential double in terms of per-share value over thecourse of the next year to year-and-a-half.TGR: AuRico has somewhat come out of nowhere with a name change and then theseacquisitions. Its actually quite a diversified situation with these properties spread out allover.JS: Yes, it is. It used to be called Gammon Gold and then bought Northgate. We think thatthis is a name that should do very well. Given that its trading below its NAV at this point,its just too cheap to be ignored. It has a heap leach at its Ocampo property thatcontinues to struggle a little bit. But I think all these issues are well known. At this level,this name and really all the others, should be bought, if you believe that gold prices willmove higher, which we certainly do.
  20. 20. Gold Stock Investors— Buy "Best of Breed": John StephensonTGR: You probably look at a lot of other little companies that maybe are not suitable foryour portfolio. Do you have any you might like to mention that you think are goodspeculations but not necessarily investment quality?JS: Yes. Obviously, lots of gold companies come along that we think are interesting. Imskeptical to mention some of these names because I think that for most investors, theyre abinary outcome. They either make it or they dont, and in more cases than not, theystruggle. I think, certainly, you could make a case for Pan American Silver Corp. (PAA:TSX;PAAS: NASDAQ) and some of these other names that are smaller, but theyre really a betaplay on gold because when you start looking at some of these silver names, they typicallytrade in a much more volatile pattern than the gold producers. I think for many investors,the volatility isnt worth the ride.
  21. 21. Gold Stock Investors— Buy "Best of Breed": John StephensonTGR: What sort of strategy are you suggesting investors use this year for maximizing theirgains or not having the same sort of performance we had last year?JS: Weve seen mining company valuations trend down for many years. Now is a good timeto start building positions by buying the best of breed—the ones that will do well in anincreasing gold scenario that have little or no operational risk and are larger-cap names.Besides Barrick and Goldcorp, certainly, Kinross Gold Corp. (K:TSX; KGC:NYSE) would beanother name to look at. I think its growth comes a little further out, probably in 2013, butyou can start to take a look at that. I think turnaround situations like Agnico-Eagle Minesmight be very good to look at. Keep in mind, if youre buying a mining company, its makinglots of money at $1,500–1,600/oz gold, but if you buy an ETF or the physical metal, yourehoping it goes from $1,600/oz to $2,000/oz or $2,500/oz in order to make a profit. In thecase of a mining company, you dont need it to go anywhere. All you need is somerecognition that there is value today in these companies, and there will be value tomorrow,as they, it is hoped, find more reserves and produce them.
  22. 22. Gold Stock Investors— Buy "Best of Breed": John StephensonTGR: Are there any parting thoughts that youd like to leave with our readers?JS: I would advise people to keep in mind that if there ever was a time for an investmentin gold and gold equities, it is now. We have a very unusual situation in the globaleconomy, where there really isnt any obvious exit path other than the monetization ofthe debts. Gold companies have suffered because people have flocked to other safehavens, namely the U.S. dollar, but the U.S. has its problems as well. In general, if yourewith a company that has more than one operating mine in geopolitically safe parts of theworld and has a demonstrated track record of increasing reserves and production, then Ithink those are the things that will, in the longer run, reward you. Short run speculatingmay be exciting but I think most people need to invest in things that have the potential tobe higher a year from now than they are today. I think, right now, this is gold equities.TGR: Thank you for your thoughts, input and insights. I hope 2012 will be a better year foreveryone. We look forward to seeing how all of this comes about.
  23. 23. Gold Stock Investors— Buy "Best of Breed": John StephensonJS: I hope so.John Stephenson is a senior vice president and portfolio manager with First AssetInvestment Management Inc., where he is responsible for a wide range of equitymandates with a particular focus on energy and resource investing. He has beenrecognized by Brendan Wood International (BWI) as one of Canadas 50 bestportfolio managers for the past three years. He is the author of The Little Book ofCommodity Investing (John Wiley & Sons, 2010), which has been translated into fivelanguages, and Shell Shocked: How Canadians Can Invest After the Collapse (JohnWiley & Sons, 2009) and writes a free bi-weekly investment newsletter, Money Focus,which reaches a global audience of more than 125,000 (www.reportonmoney.com).
  24. 24. Gold Stock Investors— Buy "Best of Breed": John StephensonWant to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and youll learn when new articles have been published. To see a list ofrecent interviews with industry analysts and commentators, visit our ExclusiveInterviews page.DISCLOSURE:1) Zig Lambo of The Gold Report conducted this interview. He personally and/or hisfamily own shares of the following companies mentioned in this interview: None.2) The following companies mentioned in the interview are sponsors of The GoldReport: Goldcorp. Inc. Streetwise Reports does not accept stock in exchange forservices.3) John Stephenson: I personally and First Asset Investment Management own sharesof the following companies mentioned in this interview: Barrick Gold Corp., GoldcorpInc., IAMGOLD Corp., Agnico-Eagle Mines Ltd., Osisko Mining Corp., AuRico Gold Inc.,Kinross Gold Corp. I personally and/or my family am paid by the following companiesmentioned in this interview: None. I was not paid by Streetwise for participating inthis story.
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