Kinross Gold (K.TO)

It is on his stock watch list. They are having difficulties in Africa. It is one of the favourite gold companies he does not own.

This came under new management 6 years ago, the new manager has been hitting his targets pretty well. The main mine back then was in Russia and Gallender was concerned about the political risk. Their sustaining cost is low. Then the company paid way too much for another mine. It is now producing and he has started watching it again. It has a debt load of about 1.5 times revenue, which is not terrible for a mining company but is a concern.

It’s been coming down but he is not ready to buy yet. They have a high debt load but not much of it payable until 2021. It has a lot of upside. They do a lot of business in Russia. So far they have dodged the bullet on sanctions but there is risk.

Years ago, they bought the Tasiest mine and paid a horrendous amount of money for it, and then had to write it all off. Now that everything is written off, you have a hard asset. They are now going to enlarge the mine in 2018, and it is going to be a low-cost producer. If we get any kind of a move in bullion at all, the stock should do very, very well. (Analysts’ price target is $6.99.)

He never takes gold stock questions and does not own them. In 1980 gold was at $800 and the Dow was at 800 points. The Dow crossed $24k today while gold is hoping to get past $1300. He does not see the justification. He has ever owned any gold stocks.

This has to get over some reputational damage that was done with acquisitions in the last bull market. His suspicion is that it will be a good beneficiary of a reasonably good gold market which he sees unfolding in 2018. He is favourably disposed to this company.

We are beyond the period of seasonal strength for gold stocks. From June 16 to October 9, this has generated a return of 1.71%. That is the period of seasonal strength for gold commodity and producers. Technically, the chart shows a bit of a head and shoulders pattern. If we get a break below the 200-day moving average of about $5, you could see significant lows ahead. Thinks gold miners are a great buy here even though we don’t have positive seasonal tendencies over the next few months.

In today’s environment, with low interest rates and low inflation, it is a good environment for a lot of gold companies. They have begun to clean up their act in being more cautious in terms of development of new projects. Overall, a lot of the gold companies are in much better shape than they were 5 years ago. This one has been doing a little better lately. He prefers others. (See Top Picks.)

A classic example of a gold stock. This has very strong seasonality during the early part of the 2 cycles for gold. Historically that is from the middle of December through until around the 3^rd week in February. We are now outside of the period of seasonality until we get to the period of seasonal strength, around the 2^nd week of July.

This has some interesting growth going forward. They’ve basically had to take lemons and make lemonade. Going forward, it is interesting to watch. He is waiting for the balance sheet to improve and getting more clarity on what is happening with their mine in Mauritania.

It has a distinct downward trend. Seasonally it goes up in February and again in July. Wait until it shows a base pattern before making a major commitment. Be patient. It is not there yet.

He wants to see a good balance sheet and a great asset play. One of the problems in the gold market is that although gold has gone up so has their cost structure. He worries more about the asset than the gold price. He rarely holds large cap gold companies because it is hard for them to grow.

In general, there can be a little disconnect between producers and gold bullion itself, but they eventually tried to follow each other. A while ago, he had felt gold would pull back, so he is looking for bullion to pull back a little. Longer-term, he is relatively bullish on gold and the producers, and looking at any weakness as an entry point.

With the liquidity present in this company and with the run it has enjoyed, he would employ very tight trailing stops.

A well-known story that has been around a long time. Made a number of acquisitions over the last 5-6 years, that haven’t necessarily worked out. The one thing in its favour is its exposure to gold. In an interest rate environment, where negative rates are prevalent around the world, people are going to question loaning or leaving money in a bank and getting a negative rate of return. He likes this company.