Invest in Gold Stocks

Invest in Gold Stocks: A Golden Tan
by Eric J. Fry
The Rude Awakening
Wall Street, New York
Tuesday, December 6, 2005

Eric Fry recounts a discussion with Michael Martin on some ways to Invest in Gold Stocks.

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[Joel's Note: Below, Eric chats with gold trading veteran,
Michael Martin, about his favorite gold plays. Turns out
you don't have to be flush with the green to invest in the
yellow either. Last week I received numerous emails from
happy gold bugs, stoked that the shiny metal finally
punched through the $500 ceiling. Most of them predicted
even higher prices in the near future. Read on below and
email comments to your dollar-poor, gold-poorer junior
editor at:

aussiejoel@the-rude-awakening.com

Cheers

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A Golden Tan
By Eric J. Fry

"The bull market in gold is still young," declared Michael
Martin late last week. "I would be buying every dip on the
way up...just like tech stock investors did throughout the
1990s."

On most work days, Martin, a 26-year veteran of gold-stock
investing at R.F. Lafferty in New York, would prefer to see
the yellow metal go up, rather than down. A rising gold
price makes his clients happier, after all. But since he
has seen so many down days throughout his career, he has
learned to sell short gold stocks on occasion, or at least
to ignore them from time to time.

"So what're you doing now, Mike?" we inquired yesterday.
"Gold hasn't provided the convenient correction that many
gold bulls have been waiting for. Are you buying gold
stocks anyway?"

"Selectively, yes. Even though gold keeps chugging higher,
the curious thing is that many gold stocks are not chugging
higher. If you take a look at bellwethers like Newmont and
Goldcorp, you'll see that they have been drifting lower,
even as gold has soared to new 23-year highs. Today's
[Monday's] market action is a perfect example...Gold is up
almost $6.00 an ounce, yet most of the major gold stocks
have barely budged. Newmont is up a few pennies; so is
Anglo (NYSE: AU)...while Goldfields is actually down on the
day. We've been seeing this kind of action for the last few
days."

Invest in Gold Stocks: A Nice Little Entry Point

"I noticed that," we said, "But actually, gold stocks have
been lagging for about two years. What do you think these
divergences mean? Are the shares pointing to a lower gold
price? Or is gold pointing to higher gold stock prices?"

"Obviously," Martin replied, "on a short-term basis, you
can never know what these divergences are indicating until
after the fact. But on a long-term view, I think the gold
share market is providing a nice little entry point. Not a
great entry point, perhaps, but a nice one. If you try to
get too cute in the midst of a strong bull market, you
spend all your time ruing your indecision. Better to take a
position with a three-year view and not worry so much about
the next three weeks...That's why I'm focusing on stock-
picking more than market-timing."

"So what stocks are you picking?" we inquired.

"Well I'm concentrating mostly on the mid-tier names...the
prospective takeover targets. As you wrote in one of your
recent columns, most of the large gold companies are
shopping around for acquisitions. So I'm trying to help my
clients take positions in the kinds of stocks that the big
gold companies would want to buy."

"Details, please."

Just today, Goldcorp (NYSE: GG) snapped up Virginia Gold
(Toront VIA), while Yamana Gold (AMEX: AUY) bought a
little company called RNC Gold. And a few weeks, Goldcorp
bought a stake in Wolfden Resources (Toront WLF). It
seems like there's a new deal every week."

"And you think this buyout boom is likely to continue?" we
asked.

"Sure, it is still easier and cheaper to 'find' gold on the
stock market than to find it through exploration. As long
as that remains the case, the buyouts will continue. That's
why I'm focusing more of my efforts on takeover candidates.
The mid-tier companies, in general, offer the greatest
leverage to rising gold prices. So even if no big company
comes along to swoop them up, individual investors should
still do very well by owning these stocks."

"Okay, fine, it all sounds nice in theory...So how about
some names."

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"Didn't Goldfields make a recent bid for Bolivar?"

"Exactly. So since my buddy guessed correctly once, I'm
wondering of he might also be right about one of the other
three. Out of this group, I'm partial to Alamos Gold, which
has some very interesting gold/silver properties in Mexico.
And the company should be in commercial production early
next year."

"I'm noticing that most of the stocks you've mentioned are
in the $200 million to $300 million range."

"Yeah, that seems to be the sweet spot," said Martin,
"which leads directly to my personal favorite: Tan Range
(Toront TNX). The stock has a $250 million market cap, a
fascinating business plan and an impressive pedigree. The
company's chairman and CEO is James Sinclair, who's a well-
known name in the gold market. Sinclair's made millions in
the gold market, even in bad times."

"I remember, Sinclair made me a few bucks back in the mid-
1990s, when I was a shareholder of Sutton Resources."

"Right, he's the guy that got the ball rolling. Through
Sutton," Martin explained, "he purchased some highly
prospective gold properties in Tanzania. Then he spent a
few years exploring and developing the properties.

Eventually, Sinclair's team proved up more than 10 million
ounces and sold Sutton Resources to Barrick Gold for a very
tidy profit."

"And that happened in the midst of the gold bear market!"

"Right," Martin replied, "So now that we've got a bull
market, maybe Sinclair can do it again."

"So what's the story with Tan Range?" we asked.

"Tan Range is a small Tanzanian version of the old Franco-
Nevada. It does not conduct any mining operations of its
own. Instead, it buys prospective gold properties, then
options out exploration and development rights under
royalty agreements to major mining companies. The company
owns about 120 mineral resource properties in Tanzania's
Lake Victoria region, and has multiple exploration
agreements with Barrick Gold, AngloGold Ashanti and
Northern Mining Explorations."

"So what makes Tan Range so different?"

"Exactly what I already said: great properties and a great
business strategy, run by a guy with great track record."

"Thanks Mike...One more thing. Do you own Tan Range or any
of the other stocks you mentioned?"

"Of course I do," he replied, "And do you know why I own
'em?"

"Nope...Enlighten me."

"Because I think they're going higher."

[Joel's Note: So you want to benefit from the rising tide
of gold but are not sure exactly how to go about it? While
you mull over which gold stocks are the sexiest acquisition
targets, you might like to diversify your portfolio with a
MarketSafe Gold Bullion CD from our good friends and
business associates, Everbank. Click here to get in on the
gold fever:

www.everbank.com/main.asp?idpage=pro_mscd&affid=eb&referID=11925  

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