With the monetary printing presses firing up yet again on both sides of the Atlantic, the outlook has grown crystal clear for a major resumption of upward momentum by the primary benefactors of central bank largesse: gold and silver.
Following up on my recent prediction that the latest round of quantitative easing by the U.S. Federal Reserve brings my long-standing price objectives of $2,000 gold and $50 silver straight to the fore as conservative near-term targets, I want to take this opportunity to discuss some of the specific gold-related investments that I find most exciting at this juncture. In no particular order, the following are five gold equities that I consider capable of delivering powerful shareholder returns as gold rockets higher.
IAMSERIOUS about IAMGOLD
Although this cash-rich, growth-ready, gold miner has already surged 39% since I highlighted the stock's remarkably low resource valuation just one month ago, I continue to perceive very strong upside potential in the shares of IAMGOLD (NYSE: IAG). Atop an exciting growth outlook that's fueled by the nearly completed Westwood mine and major expansions of existing operations, IAMGOLD's long-term pipeline features the enticing Côté gold project (acquired earlier this year). Moreover, I believe the market continues to overlook the tremendous value of IAMGOLD's world-class niobium mine and its nearby bonanza in rare-earth elements.
Finally, the miner's recently expanded note offering of $650 million -- when paired with existing credit facilities and a $615 million bounty of gold bullion and cash -- grants IAMGOLD a commanding liquidity position of roughly $2 billion! Because the company stands ready to pounce upon strategic opportunities in a way that most of its peers can only dream of, I consider IAMGOLD beautifully positioned for the oncoming rally in gold. I prefer to see potential for a double in each of the gold stocks I buy, and IAMGOLD is no exception. I estimate current fair value, at today's gold price, in the neighborhood of $30 per share.
The secret is getting out
While those who lent a Foolish ear when I offered Sabina Gold and Silver (ticker "SGSVF" on the over-the-counter exchange) as "the best-kept secret in gold" may have already enjoyed a 54% advance in just over three months, here again I believe that substantial opportunity remains in the shares of this cashed-up explorer with a precious silver royalty. Just this week, Sabina made yet another new high-grade discovery of near-surface gold -- between two of the proposed open pit mines at the Goose portion of its Back River project -- with a 15.45-meter intersect of 12.68 grams per ton. With more than $150 million available to fund exploration and development work as of the end of the second quarter, Sabina is in ideal position to add shareholder value at the tip of the exploration drill while preparing the key feasibility study for Back River due early next year. I enjoy being invested alongside 7% stakeholder Silver Wheaton (NYSE: SLW), and I look forward to a powerful rerate as the market begins to price in the value of Sabina's phenomenal silver stream.
Is that a sandstorm on the horizon?
I consider a well-selected royalty vehicle a core component of any well-crafted strategy for precious metals investment. While much fuss has been made over the extent to which the bullion proxy SPDR Gold Trust (NYSE: GLD) has outperformed the miners in recent years, it's important to note that Royal Gold and Franco-Nevada have both handily outperformed gold over the trailing-five-year period. Led by former Silver Wheaton CFO Nolan Watson, small-cap gold streamer Sandstorm Gold (NYSE: SAND) has already delivered a prompt five-bagger performance since its inception in 2009, and the stock remains a consistent favorite among the knowledgeable gold investors at Motley Fool CAPS (earning a four-star rating out of a possible five). Fresh from a $150 million bought-deal financing, Sandstorm looks well-positioned to add another accretive gold stream to its alluring portfolio. I've recently added Sandstorm as a top pick in my CAPS portfolio (better late than never!), and have added the stock as a core holding in my real-life stock portfolio.
You belong in the valley of kings
I've inspected my fair share of drill core samples over the years, but I've never encountered anything like the pervasive and ribbon-like visible gold that swirls through Pretium Resources' (NYSE: PVG) world-class discoveries in the Valley of the Kings portion of its Brucejack property. This expanding high-grade bonanza was augmented just this week by another round of top-notch intercepts (not included in the latest resource estimate), including seven intervals sporting grades above 2,000 grams per ton! Utilizing appropriately conservative estimation parameters, Pretium recently released an updated resource estimate outlining an indicated resource of 5.1 million ounces with a phenomenal average grade of 16.2 grams per ton, and an inferred resource also of 5.1 million ounces with a mouth-watering grade of 35 grams per ton. Those unrivaled average grades set this project quite clearly apart from other massive gold projects in this area of northwestern British Columbia that have not yet moved forward into development. As gold moves through $2,000 per ounce, I expect the gold ounces being amassed at Brucejack -- to say nothing of the 34.9 million-ounce gold resource at Pretium's adjacent Snowfield property -- to drive substantial shareholder gains.
Dive into the Rainy River
After enjoying a remarkable multi-bagger run during 2010 and cashing out near the stock's all-time peak, I began diving back into shares of Rainy River Resources (ticker "RRFFF" on the over-the-counter exchange) this year to try for a second multi-bagger run. Fools who may have dipped their toes in this river when I highlighted the stock in June could already be sitting on a 30% gain, but I believe room still remains for an easy double from here before Rainy River approaches fair value for the 3.8 million ounces of recoverable gold envisioned by the company's recently released preliminary economic assessment, or PEA.
Rainy River's PEA offers a prime example of how explorers must adapt to rising capital costs and the increasingly conservative decision-making parameters now employed within the industry. The company tweaked the project design to trim $245 million in capital costs from the preceding PEA, while increasing the average ore grade and maintaining a highly competitive cash-cost structure. Using a $1,250 gold price and $25 silver, the PEA estimates the project's net present value, or NPV, at $846 million with a passable IRR of 21%. However, because I expect the latest round of quantitative easing to drive gold prices clear through $2,000 and silver beyond $50, I want Fools to consider for a moment what Rainy River's NPV would look like in such a sustained price environment. At $2,000 gold and (just) $40 silver, Rainy River's NPV leapfrogs to $2.9 billion with an incredible IRR of 47.5%!
Because I believe the world's central bank printing presses are nowhere near finished with their regrettable policy of destroying the purchasing power of their respective paper currencies, I believe the time is fast approaching when gold and silver's sustained advance will render $2,000 gold a conservative price assumption for the purposes of assessing development projects. Within that scenario, furthermore, I believe all five of the preceding gold stock picks will deliver multi-bagger returns. To track my ongoing coverage of precious metals and the suite of related equities, please bookmark my article list or follow me on Twitter.
- Add IAMGOLD to My Watchlist
- Add Sandstorm Gold to My Watchlist
- Add Silver Wheaton to My Watchlist
- Add Pretium Resources to My Watchlist
- Add Sabina Gold and Silver to My Watchlist
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