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The New Global Standard for Wealth Creation

The Case for $100/Share

Posted on 09/25/2006 16:40:54 | Link | Post Comment

Many would have you believe that the world is already in the midst of  "Gold-Mania". Not so. Aside from jewelry, 95% of Americans do NOT own any Gold. None - Zero - Zip - Nada! Does that sound like mania to you? Every talking head both on TV and Radio, are all unanimously banging the drum for $1,000 oz with few exceptions, yet 95% of all Americans have NO gold in their portfolio? In the heady days of tech, 45% of American investors were directly invested in tech stocks via their self directed account, 401k, retirement, or mutual funds.

Gold still has a lot of catching up to do. Not only price-wise, but in active participation. As has been my opinion for quite some time, true Gold Mania will begin when those first rounds of predictions come to pass. The day that Spot Gold crosses $1,000 oz, will be a historic day in more ways than one. When that day comes, and 95% of the world is suddenly scrambling to "get in" at any cost, where do you want to be? Are you going to chase the herd, or would you rather already be back at the ranch with your Tony Lama's propped up and a toothpick dangling from your satisfied grin?

As incredibly overwhelming as the Tech Rush was, I believe it will be dwarfed by the Tsunami size proportion of the modern day Gold Rush. My argument for this case is quite simple.

  1. The World is running out of Gold
  2. People understand Gold

When you invested in Cisco or JDS Uniphase, did you really understand what they did? People are more comfortable with what they understand. The conditioning of the masses is taking place right before our eyes. Flip on CNBC, MSNBC, or even CNN, open your local newspaper, turn on the local radio talk show, day after day after day, the mantra drones on.

  • Gold is going up
  • Gold is real money
  • Gold is safe
  • Gold is a hedge against inflation
  • Gold is the only "sure" thing in an unsure world

When the Rush begins it will begin with an attitude. Investors will belittle themselves for not getting in sooner. They didn't listen when they were warned about Tech, they failed to listen when Gold was $600 oz, but now they have a chance to make up for all those mistakes. Do you want to be caught in that stampede of escalating prices?

It will be at this point I believe, when we will see something akin to Moore's Law kick in. As the remaining 95% of the world rushes to stake their claim and spot prices for Gold continue to soar daily, something even more phenomenal will be quietly taking place in the background. Yes, 21st century Gold Bugs will indeed double or possibly triple their money in short order, but another group will be experiencing something far more dramatic. Those savvy individuals who chose carefully selected junior mining companies with proven reserves for their portfolio prior to Gold Mania, will be the ones who reap the exponential fortunes. These are the men and women who will become this generations answer to the Getty's and Rockefeller's. As opposed to merely doubling or tripling their investments, these pre-mania investors are positioning themselves to reap gains of 5,000 - 10,000 percent and more.

Warning! Not all mining juniors are created equal. Some have no proven reserves. Some have merely added Gold to their name the way companies in the 90's added tech to their names. They have hopes and dreams and even a business plan that details how they will eagerly spend your investment dollars in search of the precious yellow metal. Do you have any idea what the statistics have to say about that? The chance of discovering a new deposit of Gold is so minute, that junior mining companies with proven reserves are now the hottest takeover targets on Wall Street.  

A study by RBC Capital Markets has identified 37 North American “junior”gold stocks that may very well be targets of predatory activity given rising pressure on Tier I and Tier II gold diggers to find “replacement” ounces. Some of the “juniors” will not come cheap; Crystallex, which sits at the top of the market capitalization table, would cost more than $600m, excluding the takeover premium that its shareholders would inevitably demand.

RBCCM makes the point that while exploration spending has increased in recent years, “very few significant gold deposits have been discovered over the past five years”.  However, given the current era of rising gold prices and increasing cash reserves among established gold diggers, it is natural for investors to anticipate that North American Tier I producers (Newmont, Kinross Gold, Barrick and Goldcorp) and Tier II companies will continue to acquire development stage projects with defined gold resources in order to meet long-term growth objectives.

The RBCCM study finds that North American Tier I gold producers currently trade at an adjusted market capitalization (AMC) of $150 and Tier II producers at $190 an ounce of gold, based on measured and indicated resources. To the extent that junior gold explorers trade at lower AMC per ounce multiples, RBCCM reasons that “it is often accretive for established gold producers to adopt a ‘growth by acquisition’ strategy”.

RBCCM finds that the average AMC for the 37 North American junior gold exploration and development companies examined computes at $95 an ounce. While the quality of each ounce of gold varies according to grade, depth, location, and so on, the numbers suggest that the juniors are generally priced for takeover activity. The study also shows that North America is highly favored as a listing destination; among the different bourses, Toronto ranks as first choice.

The list of juniors identified in the RBCCM study suggests incredible energy on the part of those participating in the new “gold rush”, and a willingness to seek gold in every corner of the earth.

   
Gold Demand – Q1 2006
  • Total identified demand for gold in the first quarter reached 835.7 tonnes, worth $ 14.9 billion

Over the  next few days, I will share with you what I feel is quite possibly the most compelling investment opportunity of our lifetime. After years of research and study, I have isolated the one company in this sector that I believe has the potential to go from $1US per share, to as high as $100US in the coming decade.

Stay tuned for Part 1 of "The Case for $100 / Share"

Trade Safe ,

From the World of CT

CT does not accept cash, stock, warrants or the promise thereof,
to profile or promote any company.
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