A new gold investor contemplates gold''s morality

Section:

Gold's easy money lures Wall Street
Mining industry unblemished in shaky times

By Thom Calandra
CBS.MarketWatch.com
March 26, 2002

SAN FRANCISCO (CBS.MW) -- Maybe you heard the
ad: "You bought the stock last night, and next morning,
the CEO is on the stand, pleading the Fifth."

It's that kind of market.

Maybe your favorite corporate chieftain is hung over
from shopping sprees, wiping tens of billions of dollars
from the balance sheet. He or she is facing a Securities
and Exchange Commission probe. The top talent at the
company you chose to be your retirement vehicle sold
80 percent of their own shares en masse.

Or maybe the stock got downgraded by five brokers
the day after you bought it. Or the chief financial officer
decides to leave for personal reasons. Throw in an
untimely court ruling, if it's a drug company. A cash
take-under if it's a tech company. A dilutive convertible
issue if it's any company.

You get the picture.

Which is why, right now, you have to love gold mining
companies. None of their executives, to my knowledge,
are headed to jail just yet. Wall Street, which usually
sniffs at gold mining companies, is even warming up to
them.

Gold mining shares are top of the charts, at a two-year
high in the U.S. stock market and at or near all-time
highs in Australia and South Africa. Toronto's benchmark
index of gold mining shares has gained 37 percent this
year alone.

On Tuesday, Morgan Stanley started coverage of Gold
Fields Ltd. -- the South African gold company whose
unhedged production of precious metals has sent its
stock to the moon -- with an "overweight" rating. Placer
Dome and other gold mining shares are getting their
upgrades too.

The world's largest miner, Newmont Mining, weeks ago
shrugged off a bizarre "sell" recommendation from
Prudential Securities. The Feb. 11 proclamation (by
Pru's Jon Tumazos) and the firm's $10 price target
came as Denver-based Newmont was tidying up its
three-way merger with Australia's Normandy Mining and
Canada's Franco-Nevada.

Now Newmont shares sell for $27, and CIBC World
Markets the other day slapped a $37 price target on
the miner's NYSE-traded stock. Many of the Wall Street
mining upgrades are based on gold's slightly higher
price and the extra cash flow that comes with it. Like
most Wall Street research, the bullish calls come
AFTER the easy money has been made, and in
Prudential's case, as the easy money is being made.

U.S.-traded gold stocks as a group have gained more
than 25 percent since June of last year. Some individual
gold mining shares, like the unhedged Gold Fields and
Harmony Gold Mining, have more than doubled in price
since June, helped by the weak South African rand's
magic effect on these companies' profit margins.

Meanwhile, gold mutual funds -- the real barometer for
ordinary investors -- are packing double-digit gains. The
Tocqueville Gold Fund, run by gold believer John
Hathaway, who sees $600 and upward prices for the
metal, is up 43 percent since Jan. 2.

"Gold is starting to gain credibility amongst the bigger
brokerages houses as several in the last week have
woken up to the possibility of the shiny metal's
improvement and made upgrades," Kevin Lane, chief
strategist at Technimentals Research Group in New
York, said Tuesday. "Better late than never, I guess."

Pierre Lassonde, the president of Newmont and a
veteran gold mine owner and investor, estimates with
gold at $350 an ounce, pre-tax cash flow for Newmont
would come to $1.6 billion, or $4 a share for the newly
merged entity. Trading at 12 times cash flow, Newmont
stock easily could surpass $50 a share, Lassonde says
from Toronto.

With the shiny metal changing hands Tuesday at
$296.10 an ounce, gold mining investors are being
asked to believe the metal's price will head to $350 --
a level not seen since 1996. Only at those prices will
gold shares, currently the best performing investment
in many of the world's stock markets, continue to make
money for ordinary folks.

Robert Bishop, regarded by the gold industry as an
optimist who has paid his dues in more than 20 years
as analyst and newsletter editor, says investors will be
thrilled by the metal's performance in coming months.

"Due mostly to the length of time gold has been out of
favor, and because so many seem distracted by hopes
of recouping their losses on Nasdaq), my view has long
been that gold must go dramatically higher to begin to
gain widespread market interest," Bishop said Tuesday
from his California office, where he publishes Gold Mining
Stock Report.

Bishop is advising his clients to stock up on both the
leading gold mining companies, Newmont and Gold
Fields, and lesser known ones, like tiny, Toronto-listed
Wheaton River Minerals, which may be poised to acquire
productive mines.

"Gold is making higher highs, higher lows, and, I submit to
you, is on the threshold of leaving $300 behind in a manner
that will supplement the audience for gold stocks," Bishop
says. "If you want two closes over $305 to become a
believer, as some technicians want to see, or $325 and then
$354, you can wait for those events if you like. But just
remember: it will cost you dearly. Just ask the people who
didn't believe in gold's prospects a year ago."

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