Candente Copper Corp (DNT)

[Frank Pembleton]

Investors choose minerals over paper
Vancouver crowd swarms gold, mining exhibitors

By Thom Calandra, CBS.MarketWatch.com
Last Update: 11:48 AM ET Jan. 28, 2003


VANCOUVER (CBS.MW) - Bring out the gold crowd, more than 2,000 of them, and you'll get more mining and gold-share metrics than you bargained for.

"We're digging pits straight to bedrock before we drill, because it's cheaper, a lot more efficient," says Joanne Freeze, a geologist and chief executive of Candente Resource Corp. (CA:DNT: news, chart, profile). Freeze's tiny Candente doesn't have too much of a choice. In Peru, local miners dig bullion out of the ground for as little as $40 an ounce.

Freeze is one of scores of executives and geologists in Vancouver this week, telling their stories to investors and analysts at two events. She joined more than 100 mostly junior-level companies at an investor pre-show to the annual Cordilleran Roundup in this Canadian town, which is as close to ground zero as you can get to the mining and exploration sector.

The Vancouver Gold and Investment Show this past weekend hearkened back to the days, less than 10 years ago, when gold was a $500-an-ounce-plus commodity with cachet. "Three months ago, we never would have expected this kind of crowd," said Joe Martin of Cambridge House, the gold show's organizer. "I think we're seeing the light at the end of the tunnel."

On Tuesday, filling the halls of the Cordilleran Roundup gathering were professionals seeking financing or insight into minerals mining. The event, in its 19th year, moved to a larger hotel on the Vancouver waterfront after registration boomed following the steady rise of gold and platinum prices.

With gold's price flirting with $370 an ounce for the first time in six years, the Roundup's trade show and exhibitor hall sold out this year, drawing the world's biggest gold miner, Newmont Mining (NEM: news, chart, profile), as well as tiny diamond explorers, minerals labs and even helicopter pilots plying their trade.

Ahead of the Roundup, those who packed a neighboring hotel at Martin's Vancouver gold show were ordinary folks, hoping for insight into a small world that has spawned 300 percent and 400 percent gainers in the past 18 months. "The regular stock market just isn't doing it," says Keith MacDougall, a private investor who lives in British Columbia. See: Geologists find wealth in dusty fields.

MacDougall, and the throng of Main Street investors at the gold show, hung on the advice of several high-profile mining analysts, including Robert Bishop of Gold Mining Stock Report, Frank Holmes of U.S. Global Investors and John Kaiser of Bottom Fishing Report.

Holmes' mutual fund company U.S. Global, thanks to gold companies, had some of 2002's best gaining funds among domestic equity funds in the United States. He demonstrated how a mix of S&P 500 Index shares, 80 percent, and Toronto Gold and Precious Minerals shares, 20 percent, achieved an average annual return to shareholders of about 12 percent from 1971 through 2002. That was higher, and with less volatility, than a pure S&P 500 holding.

The mixed portfolio "gave you more or less the same risk as a pure stock-market exposure with no gold, but a significantly higher return," said Holmes. His startling discovery, one that knocked the breath out of some investors at the conference, was that total return, including dividends, of the TSE Gold Index of mining companies from 1972 through 1996 beat the overall stock market, as measured by the S&P 500 Index.

"The difference was U.S. government budget deficits," Holmes said. "Once the Clinton White House started slashing the deficit, gold fell, the dollar rose and the stock market beat the miners," said the Canadian-born executive, whose fund company is based in Texas. Since the Sept. 11, 2001 attacks, "the budget deficit has returned, real interest rates are negative, the dollar has fallen and gold has risen."

Higher shares prices for the smallest mining companies - in some cases 5 times or more their levels of a year ago -- are allowing the exploration sector greater freedom to raise the money they need to hire drilling rigs, helicopter pilots and grizzled geologists to comb the world for properties.



"Our best defense is our share price," President and CEO John A. Clarke of Nevsun Resources (CA:NSU: news, chart, profile) told me over lunch. Clarke, when mining shares were near their lowest point almost three years ago, insisted his Vancouver company renew licensing rights from government agencies in western Mali, Africa.

The payoff came last week. Nevsun's assay results from its Eritrea property in Mali bowled over most investors. "We were hitting massive sulphides," said Clarke, whose career goes back five years with Nevsun and another 15 years with Ghana explorer and producer Ashanti Mining.

Nevsun also recorded promising results from two other Mali projects. The company, its shares making it 2002's biggest gaining gold stock in the world, stands to boost its estimated resource base of 3.2 million ounces. Other gold companies, particularly those in resource-hungry South Africa, are watching closely.

"If someone takes a run at us," Clarke says of a potential takeover attempt, it's entirely the shareholder's choice. This is mind blowing, but it's early days."



Nevsun's fully diluted market worth, even after seeing its shares rise 1,500 percent from 1999 through this month, is less than $200 million Canadian. Far smaller companies, such as Freeze's Candente, which is exploring in Peru and Canada, says the entire exploration industry's successes brighten prospects for all legitimate miners.

"Anglogold (AU: news, chart, profile), Newmont, Placer Dome (PDG: news, chart, profile), they all need product," says Freeze at Candente, which is worth just $11 million Canadian, even after a one-year doubling of the company's stock price. "The largest miners have all let this exploration activities decline to perilously low levels."

Kaiser, a newsletter writer whose Bottom Fishing Report sizes up the relative value of exploration companies based on estimated resources and other mining metrics, says a $375-an-ounce gold company "makes it very economic for most of the juniors."

One of Kaiser's best values right now is Eagle Plains Resources (CA:EPL: news, chart, profile), whose shares, like most of those mentioned in this article, trade on the Toronto Stock Exchange's venture section. " "Eagle Plains could have a million ounces of high-grade gold in Northwestern British Columbia,' says the California-based analyst. The company's stock-market worth is less than $5 million Canadian.
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