But they ARE selling a bridge in Brooklyn....


By Thom Calandra
Wednesday, Feb. 6, 2002

SAN FRANCISCO -- Now comes the hard part in the
$300-plus gold rally: finding the neglected mining stocks.

Problem is, there aren't many. The entire category of
gold mining stocks, from the Newmont Mining giants to
the Vancouver-listed juniors, doesn't exceed $50 billion
of market capitalization. "Up until three weeks ago the
entire market cap of the book was smaller than
McDonalds," said John Hathaway, whose $30 million
Tocqueville Gold Fund is up 29 percent since Jan. 2.

Of the largest gold companies, Hathaway sees Barrick
Gold, digesting its 2001 purchase of Homestake Mining,
as a laggard. In the past two months Barrick shares have
gained about 20 percent vs. a 26 percent gain for the
11-member Philadelphia Gold and Silver index, known
as the XAU.

Another problem for late-to-the-party investors is the
finicky nature of the gold rally. After a bout of ferocious
European trading that saw heavy activity and a spot
price above $306 in London, gold's price a scant few
hours later had dropped back below $300. With the
easing metal came profit-taking Wednesday morning
in the gold mining stocks -- in North America and

"The stocks have run pretty fast relative to the underlying
commodity, so I would not be surprised to see a pull back,"
said Michael Durose, a mining analyst at Morgan Stanley.
"However, I think that momentum still favors the group and
that the stocks will grind higher."

Investors who did not own shares of a gold mining
company before the start of the metal's rally on Jan. 29,
when the metal's spot price was as low as $277.10, are
almost bound to be disappointed in coming days. Two
weeks ago, Newmont Mining, soon to be the world's
largest gold company upon completion of a three-way
merger, could be had for less than $20. Now it sells for
more than $25 a share.

Yet gold's optimists, having waited almost six years
for a sustained rally in bullion prices, are not about to
give up. Some see the price of the metal making $20
and $30 daily moves. As Franco-Nevada co-founder
Pierre Lassonde explained to me, each $10 rise in gold's
price magnifies an established mining company's pretax
cash flow.

Canada's Franco-Nevada, Australia's Normandy
Mining and Denver's Newmont will complete a
three-way merger later this month, then name Lassonde
as the new company's president.

"If gold goes to $350 an ounce, pre-tax cash flow (for
Newmont) would be about $1.6 billion, or $4 a share
on a pro-forma basis. So the stock would have to go
between $50 and $60, based on 12 times cash flow,"
Lassonde says. Cash flow in 2001 for Newmont was
$381 million, or $1.95 a share. Newmont shares sell for
$25 on the New York Stock Exchange.

Hathaway at Tocqueville in New York is predicting
a gold price greater than $1,000 an ounce in coming
years, largely because of fiscal distress in the world's
established stock, bond and currency markets. Most
analysts and mining executives would be quite happy,
thank you, with $350 this year, $400 next.

Longtime Gold Mining Stock Report editor Robert
Bishop acknowledges gold stocks "are not cheap,
but the rising gold price will make them much less so,"
he said Wednesday. Bishop, like many in the gold
industry, is headed to South Africa next week to hear
the region's gold mining companies and government
officials discuss mining prospects at an annual
gathering in Capetown.

Bishop, advising clients this week, said his preference
at this point "would be to spend money farther down
the food chain, favoring stocks that have shown much
less movement." He points to little-known mining c
ompanies such as Nevsun Resources Ltd., which trades
in Toronto and over-the-counter in the United States.

Adrian Day, a Maryland money manager whose Global
Strategic Management places clients' money in gold
equities, estimates there are 20 gold mining companies
in the world whose market caps exceed $100 million.
Like many professional money managers, he divides
gold companies into those that hedge their production
via forward sales of their gold and those that do not.

The largest hedger, South Africa's Anglogold, has
often been blamed for weakening the price of gold
through forward sales, which add income to miners'
bottom lines but encourage loose lending of the metal
by central banks and others. Yet Day is willing to invest
in both types of companies.

Anglogold and other hedgers, like Barrick Gold, are
likely to reduce their so-called hedge books if gold
prices continue their rally. Anglogold already has
reduced the amount of gold it sells forward by 19
percent in 2001, or some 3.4 million ounces. Earlier
this week, Anglogold said it could unwind as many as
4.5 million hedged ounces of gold this year. Newmont,
South Africa's Gold Fields Ltd. and several other large
producers have sworn off the practice of hedging, and
some small companies are now paying dividends in

Day says Anglogold shares, because of the "drag"
effect of hedging during a period of rising gold prices,
have not done as well as straight-shooters such as
Gold Fields. Anglogold shares since mid-November
have gained 35 percent vs. 70 percent for Gold Fields
and 77 percent for Harmony Mining, another unhedged
South African producer.

Caesar Bryan, manager of Gabelli Gold Fund, says
hedged producers such as Anglogold may redeem
themselves in the eyes of investors as they reduce or
eliminate their tricky forward sales of the metal.

"Gold shares traditionally have an option premium
built into them, because of the gold they have in
reserve," Bryan says from New York. "That's why
they tend to be so expensive on a cash-flow basis.
But as they sell forward, they lose that option premium.
The ones that put an end to it could regain that premium."

Bryan's fund has gained 27 percent since Jan. 2. Its
largest holding is Newmont Mining, which this week
forecast it will produce 5.2 million ounces of gold in 2002.