When choosing stocks, investors need to look at why the market values one company’s ounces of gold more than another’s when the gold price is the same for everyone, Doody said. He uses a method called “market cap per ounce” to analyze companies on an even playing field.
The method uses a formula that divides a company’s market capitalization by the ounces of gold it produces per year or by its proven and probable reserves.
He pointed out that Agnico-Eagle, for example, has similar proven and probable reserves as Crystallex, but Agnico-Eagle has a market cap of C$6.73 billion, while Crystallex has a market cap of C$716.88 million, making Agnico-Eagle’s market cap per ounce much higher.
“One is overvalued and one is under,” he said. “You have to be following the stock to know.”
So what are Doody’s top picks for investing in gold mining companies?
He names his top 10 choices as: Claude Resources [AMEX:CGR; TSX:CRJ]; Nevsun Resources [AMEX:NSU; TSX:NSU]; Golden Queen Mining [TSX:GQM]; Apex Silver Mine [AMEX:SIL]; Crystallex [AMEX:KRY; TSX:KRY]; Goldcorp [NYSE:GG; TSX:G]; Western Goldfields [AMEX:WGW]; Minefinders [AMEX:MFN; TSX:MFL]; Royal Gold [Nasdaq:RGLD; TSX:RGL]; and Silver Wheaton [NYSE:SLW; TSX:SLW].
When asked what he thinks will happen to companies like Crystallex, where political instability in Venezuela has kept the miner from receiving a permit, Doody said that the firm is likely to get taken over by a major should the permit go through.
“Somebody will buy them if they get a permit,” he said. “All the majors are starved for ounces,” and they are large enough to handle the political risks.
“You have to take the country risk,” Doody said
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