WPM - Gold and Silver Stock Picks from US Global's Ralph Aldis
The precious metals sector has seen a flurry of activity in the last three months, with gold soaring to US$1,556.76 per ounce in mid-September, before dropping to US$1,461.11 at the beginning of October.
With so much variance in the price over a short period it can be hard for investors to recognize where the real value is.
The Investing News Network spoke with Ralph Aldis, portfolio manager and senior mining analyst at US Global Investors (NASDAQ:GROW), about which precious metals stocks are performing well and which ones investors should be keeping an eye on.
Aldis noted that gold has been performing well for the last nine months, while the other precious metals which tend to trade in sync, where not performing at the same pace.
“Silver has not been performing, at least for the first half of the year,” he said. “It was not doing very well related to gold, which meant a lot of the silver stocks were doing about half as good as the gold stocks.”
However, the analyst did point out that silver was able to turn it around in Q3, gaining more than US$4 between July and September, which in turn helped the precious group metals move ahead as well.
“It looks like we got some rotation into the silver stocks and the silver price went up. I think that it’s around US$18 right now (September 30) and that kind of woke up the market. Then you started seeing money also flow over to platinum and palladium,” said Aldis.
The portfolio manager’s top silver stock pick is Canadian company Silvercorp Metals (TSX:SVM,NYSEAMERICAN:SVM), which produces silver, lead and zinc concentrates from mines in China.
Aldis noted that Silvercorp stock was up roughly 60 percent for the quarter. The company released its Q1 financial year results in July, reporting a net income of US$12.6 million, with sales totaling US$45.6 million.
Shares of Silvercorp are up 80 percent year-to-date.
While silver and platinum treaded water early in the year and picked up traction in the third quarter, the palladium story was slightly different. As a crucial component of catalytic convertors — which help reduce carbon monoxide, hydro carbon and nitrogen oxide emissions in vehicles — palladium demand has been growing.
In terms of selecting a palladium stock to purchase, Aldis suggested North American Palladium (TSX:PDL,OTC Pink:PALDF). “(It is) the only real pure play palladium stock that you can buy outside of South Africa or Russia.
“North American Palladium was up almost 25 percent for the quarter, somewhat reflecting the strength that we see in the palladium market. And we continue to see pollution control devices on cars, which are still going to be around for a while,” he explained.
Despite the market share of traditional vehicles steadily decreasing as the electric vehicle sector takes hold, Aldis remains certain that palladium demand is likely to grow over the next few years.
“They continue to increase the palladium loadings in those (catalytic convertors) too. Even though they’re selling less cars, they’re actually increasing the palladium loading in the catalytic converter to further reduce pollution.”
The veteran analyst sees value in the long play when it comes to North American Palladium. The company’s Lac des Iles mine in Thunder Bay, Ontario, is in a safe and hospitable jurisdiction, and it is what Aldis dubs a long-life mine.
In fact, he noted that the project, which was up for sale at the time of the interview, would be a compliment to any gold miner’s project roster.
“Sometimes, when there’s one holder that has a large amount of stocks, you’ll feel a little bit nervous about buying it, but they have sort of signaled to the market that they’re in the process of selling that and they are in negotiations,” he said. “At some point, maybe we’ll see a sale this year before year end and I don’t know for sure. But that one could be pretty interesting and a good long term hold.”
Subsequently, Impala Platinum (OTCQX:IMPUY,LSE:0S2J.L,JSE:IMP), another top pick of Aldis, acquired North American Palladium for C$1 billion on Monday (October 7).
The acquisition alludes to the broader movement and depth of the precious metals space as a whole, and not just the gold sector.
However, with that said, Aldis did have a few top gold picks in the mid and senior tier: Franco Nevada (TSX:FNV,NYSE:FNV), Royal Gold (NASDAQ:RGLD) and Wheaton Precious Metals (TSX:WPM,NYSE:WPM).
“Franco and Royal Gold have done pretty good recently,” he said. “Wheaton Precious Metals has lagged behind them because they had a CRA tax investigation going on in prior years and that now has come to a settlement and it’s done.”
While all three are large scale companies, with market caps exceeding C$1 billion, Aldis did have a favorite.
“Wheaton seems to be the deeper value play. Plus, it does have a good silver component to it that used to be Wheaton Precious. Wheaton used to be just, mainly, silver streaming was their main thing. And then they changed their name and took up some gold streams. Wheaton is one of my top five holdings in the gold and precious metals.”
Rounding out his list, he offered some junior companies with exciting potential and indicated that more mergers and acquisitions like the late September transaction between gold royalty company Osisko Gold Royalty (TSX:OR,NYSE:OR) and Barkerville Gold Mines (TSXV:BGM) as well as the recently announced deal in which Impala will acquire North American Palladium are likely to come down the pipe line in the future.
“Barsele Minerals (TSXV:BME), they have a joint venture with Agnico Eagle Mines (TSX:AEM,NYSE:AEM) and Agnico Eagle is a very well recognized senior mining company,” said Aldis.
The joint venture is working to develop the Barsele project located in Northern Sweden, which the analyst notes is a politically safe jurisdiction.
“But, at some point Agnico would probably buy out Barsele or someone might go after Barsele and Agnico for that land position.” he explained. “It’s a big land package and they’re more than one type of deposit on it.”
Last, but not least, is TriStar Gold (TSXV:TSG), a junior company with a promising deposit in Brazil.
“The main thing about TriStar, right, that I like and gives me confidence that this stock is not going to just disappear in terms of falling off the face of the earth is that Royal Gold just agreed to, I think about a C$6 million financing for TriStar in exchange for a royalty on a property,” he said. “And so in this case, TriStar’s going to have the money for the next two years at least, to continue to do their work, do the infill drilling, do the exploration to try to grow the size of the deposit.”
Even though the veteran gold analyst is optimistic about his stock picks, he still remains adamant that more accountability and allocation is paramount.
“(The market needs) better capital allocation and shareholders to actually hold the company’s manager’s feet to the fire on that.”
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.