He is one that few U.S. investors know about called Avocet Mining plc that trades under the ticker “AVM” in London. This was the #1 position in MIdas Funds’ holdings as of April 30, 2011. What Winmill sees here is a move away from Asia in asset sales and a great focus on Western Africa where its is greatly undervalued against its land assets and on the cash flow that will come from there. Avocet does trade over the counter here in the U.S. as Avocet Mining PLC (AVVGF) but it rarely trades shares.
Perhaps the most interesting name offered up based on today’s pricing was Northern Dynasty Minerals Ltd. (AMEX: NAK). Winmill noted this one as a long-term play as the company is not generating revenues yet. It has huge assets based upon gold and metals reserves in Alaska, so it is not one of the more speculative companies that also has political risks you see in other parts of the world. The caution here is that Winmill does not expect large-scale production to matter for Northern Dynasty until after 2016, but he also believes the company could be acquired before then. Using spot prices and a discounted cash flow model, Winmill thinks this company could be worth $3 billion or even as much as $6 billion based upon the valuation of metal deposits.
The prized Pebble Partnership of Northern Dynasty is with Anglo American. Winmill noted that the company is owned almost 20% by Rio Tinto plc (NYSE: RIO) after a $200 million investment and it is also almost 10% by Mitsui. He also spoke very highly of Chairman Robert Dickinson as a man who does extremely well in just about everything he touches. We took our own look at Northern Dynasty. With shares around $11.25 today, the market cap is just over $1 billion and its 52-week trading range is $6.00 to $21.76. This is down almost half from its highs. One recent analyst call came from Canaccord Genuity’s Wendell Zerb, who has a ‘Speculative Buy’ rating on the stock with a projected one-year target of $18.10 on Northern Dynasty.
There were some parting takeaways that are not around individual names that Tom Winmill left us with. He noted, “Gold is one investment that draws much more emotion out of investors, and that often causes investors to lose sight of the return on equity.” Another aspect that Winmill believes will help gold stocks is a sector consolidation that should continue.
There are always two-sides of a coin. That is what makes a market. If the Midas Fund is correct, then the sell-off in many of the company stocks around gold will have brought about a considerable buying opportunity. That also implies that there is much upside remaining for the Midas Fund.
JON C. OGG
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