By Michael Brush, MarketWatch
AFP via Getty Images
Last week I offered five reasons why it still makes sense to buy or own gold. The guidance came from Caesar Bryan, one of the best gold analysts in the business.
Bryan has managed the Gabelli Gold Fund /zigman2/quotes/201859490/realtime GLDAX -1.62% for 26 years, and he’s simply crushed his benchmark MSCI World/Metals & Mining Index. He’s beaten it by 50.5 percentage points over the past year, 13 percentage points annualized over five years, and 4 percentage points annualized over 15 years, according to Morningstar. The fund also outperforms the S&P 500, the Dow Jones Industrial Average and Nasdaq over the past year.
Here’s last week’s column on gold: ‘Gold is going higher’ despite recent surge.
And today we discuss the best way to pick gold-mining stocks, and 17 to consider. Gold prices /zigman2/quotes/210034565/delayed GC00 -0.56% rose to a fresh high Tuesday.
Go with successful fund managers
Many gold-mining companies are small, so it’s tough to attract decent talent at the top. The Philadelphia Gold and Silver Index /zigman2/quotes/210598348/realtime XAU -0.77% (the top 30 stocks) has about the same market value as J.P. Morgan /zigman2/quotes/205971034/composite JPM -0.77% . So it’s especially important to size up management.
“If you can get a manger who is reasonably solid, you are half the way there,” says Bryan.
What are the qualities to look for? One is a track record of success. Avoid those who have over-promised but under-delivered. Look for a management team that has expertise in three areas: Finance, mine-construction engineering and geology.
“If we see one of those missing, that is a bit of a red flag,” says Bryan.
Also look for good cost control.
The bad news is the field is full of promoters. Promoters are a necessary evil, especially in early stage exploration and development companies.
“You need a promoter to raise the money; otherwise you never get the thing built,” says Bryan.
Just be wary of anyone pitching a scenario that’s too good to be true. Go with hucksters, and you can easily lose all your money. An old saw in gold investing states that at the start of a promotion, the promoter has the dream and the investor has the money. Further on, the promoter has the money and the investor has the dream. If you avoid the grifters, you’re more likely to be an investor than a dreamer.
Three with companies with solid management teams to consider are Newmont /zigman2/quotes/205356474/composite NEM -0.90% developing mining assets attained in the purchase of Goldcorp; Barrick Gold /zigman2/quotes/201432642/composite GOLD -0.89% , led by Mark Bristow, who is shedding assets and bringing down debt; and Agnico Eagle Mines /zigman2/quotes/200957337/composite AEM -0.28% , where CEO Shawn Boyd manages costs well.
Go with solid assets
Figuring out mine and reserve quality requires technical expertise that can’t be taught in a few minutes. As a rule, though, favor companies with proven reserves and a plan to extract the gold, over early stage exploration companies.
Beyond his top three positions (Newmont, Barrick and Franco-Nevada /zigman2/quotes/207385337/composite FNV -0.83% ), he singles out these three for asset quality — a blend of grade level of deposits, reserve depth and cost of production.