Gold Stock Pages
Gold is in a long term bull market having rallied over 150% since 2001. Within the same time period many gold stocks have returned investors hundreds, even thousands of percent.
It is still certain, however, that the majority of the gold run is still to come. We could go into many details about “the case for gold,” but we would rather cut to the chase and show you some real ways of how to profit from the coming shift in the geopolitical balance of power and the changes it will bring to the world monetary system.
The key to maximizing profits while lowering risk is understanding which group of RSG handpicked gold stocks to invest in and at what time.
Contents:
Gold Stock Classification
Resource Stock Guide groups gold stocks based on the size of production, or in the absence of production - based on its proximity in time.
To understand which group a certain company belongs to requires research and a thorough knowledge of the company’s business.
So why take the time to group gold stocks? First, different groups carry different risks and rewards for investors. By understanding such factors, investors can gain better knowledge of how to best structure their portfolio while taking into account their appetite for risk. In addition, by comparing group valuation levels investors can make decisions about how to reallocate their funds from one stock group to another.
To better understand the driving forces behind gold stocks, Resource Stock Guide created unique indices that assemble each group/type of stocks in a different index. We say “unique” because every other gold index we know of lumps stocks mostly based on market capitalization and liquidity. Therefore, they don’t have the advantages that the RSG indexes have.
Performance and composition of each conventional gold index is very similar. Not so for the RSG Indices. Just take a look at the differences in performance since 2006.
RSG Investment Approach
The hallmark of our approach is that we only seriously consider gold stocks with established resources. This eliminates a significant amount of risk associated with resource exploration. It disqualifies early exploration companies, often called lottery tickets.
We also do not focus on major producers (located at the top of the pyramid) which own huge mineral reserves and produce millions of ounces per year. Internal growth for them is very difficult and typically requires a major resource discovery. The only sure way to sustain their level of production is through acquisition. Major Producers are usually richly valued by the market and their stock growth potential is tightly correlated with the price of gold.
Big gold companies such as Barrick Gold, Goldcorp, Newmont Mining, etc., are covered by brokerage houses and other institutionals. The main reasons for this are regulations and liquidity needs. Even if they wanted to, the institutionals could not invest a significant amount of money in small gold companies without a huge effect on the price. One of our goals is to buy shares of companies that we see will become future targets of institutional investments.
Early exploration companies (located at the base of the pyramid) are common targets of many newsletter writers, but not for us. Surely, huge profits can be made but in one out of hundreds of lottery tickets. But why search for a needle in a haystack when in the midst of a long term gold bull market as this one, numerous opportunities exist in the more established companies?
Proprietary Gold Indices
The RSG Indices were created based on market capitalization weights. The components of each index include all stock in a group/type. Go to the Comparison Tables and select a “Company Type” that you are interested in to see all components of an index.
The RSG Gold Indices are not static. Based on our ongoing research, certain stocks are added while others are removed based on their risk/reward profiles. We introduce new entrants to our subscribers in detail. Likewise, we explain the reasons behind discontinuing our coverage of non-performers.
Advantages of RSG Gold Indices
The indices help investors determine which gold stock group performs best. During various stages of the gold bull market, different groups become market leaders. The RSG Indices also aid with the understanding of valuation averages for each group. Yet another unique characteristic is that they allow us to perform technical and valuation analysis of each group as a whole.
Gold Benchmark Index
Importance: The Benchmark, as the name suggests, is used by RSG as a reference point in valuation of gold stocks. For example, if a company is significantly cheaper or more expensive than the benchmark based on a certain valuation criteria, a number of conclusions can be drawn.
Characteristics: The Gold Benchmark Index contains the highest quality mid-size gold producers. These companies have some room to grow to catch up with the majors. They have established production and an excellent track record which minimize risk. Mid-size gold producers are best for investors who would like to stay conservative but at the same time desire better returns than from investing in major gold companies.
Makeup: The index is made up of nine producers with a total market capitalization of $23 billion. Their operations are located in relatively safe geographic regions of the world.
Resources consist mostly of gold. There is very little industrial metal exposure.
Resources are for the most part high-quality. Proven and Probable resources, which are usually 80-90% recoverable, make up almost half of the total resource base.
Performance: Mid-Tier Producers, the most conservative stocks in the RSG database, are largely flat since the beginning of 2006.
Junior Producer Index
This index is composed of small gold producers with a potential for internal growth in production. Junior producers are often acquisition targets of larger companies which explains why investors are often willing to pay a premium for these stocks.
From our perspective, the most interesting companies in the index are the ones that have just started production, graduating from the Exploration II group/type. Many companies find this exploration to production transition very difficult. Cost overruns and other production woes are common.
Knowing about these problems and their remedies is crucial for successful investing in junior producers. Detecting early signs of cost improvement and production ramp-up enables us to pick up these stocks for pennies on the dollar.
Most Junior Producers have aggressive exploration programs. Success of such programs is essential for growth. Monitoring drilling results is essential.
Exploration II Index
Companies in the development or advanced exploration stages are grouped into an Exploration II category. To be included in the RSG Exploration II group, a company needs to meet the following criteria:
- Own established reserves/resources underground
- Demonstrate economic viability of a mining project
- Have a potential to increase reserves/resources through an intensive drilling program
In other words, this is a group of companies with strong internal growth and future production plans. Evidently, they are often acquisition targets of major and mid-tier mining companies. These companies often have the best risk/reward ratios.
The fact that Exploration II companies are the strongest group in all the gold stocks is a strong sign that the gold bull market is intact.
Exploration I Index
Exploration I companies are riskier than Exploration II but may hold a greater reward potential. The reason for this is that these companies have not yet shown economic viability of extracting their gold resources. They are either preparing for future feasibility studies or are in the middle of them.
For Exploration I companies, there are still a lot of questions about the quality of the resources and project economics. Future costs of production are uncertain and production is many years away, if at all. As a result, they have very low valuations compared to stocks in other groups. These companies are speculative investments and will tend to do best in the later stages of the gold bull market.
Nevertheless, Exploration I companies already have established gold resources and are much safer than Early Exploration / Lottery Tickets.
Companies included in the RSG Gold Indices
While RSG tracks hundreds of gold stocks, only those that represent the best quality, value and growth potential are covered. All companies included in our indices have established resources, trade on the U.S. and/or Canadian stock exchanges, and in our opinion are less risky than those that are not included.
Nevertheless, choosing even from 80 or so companies is not a simple task. Some stocks are better priced and have greater potential than others, some are more risky than others. In this case, RSG Free Comparison Tables will be quite helpful by assisting you in making the right decision. If you are looking for a more sophisticated evaluation, and in depth information, you can turn to our Premium Services. Finally, the RSG Newsletter gives our take on the gold/silver/uranium stocks and highlights our best picks with entry and exit points.
Comparing and Valuating Gold Stocks
There are a number of ways to compare gold stocks. A good way to start is to look at total gold resources in the Basic Table View of the RSG Comparison Tables. You can select a different resource category (P&P, M&I and Inferred) in our free tables.
Enterprise Value per Unit (EVPU) measures how much an investor is paying for each underground ounce of gold by purchasing a stock. This is a simple, but not very advanced valuation measure. A better valuation metric is our own Adjusted Speculative Potential (ASP), available in the Premium Comparison Tables.
The easiest way to compare a gold company's relative valuation levels is by using the RSG charts (See snapshot above or go to the Demo). Visual Profiles allow users to do a more in-depth research, while the
Milestone Calendar helps investors and traders anticipate stock moving news before the market reacts.
All Gold Companies
