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Simple Secret to Gold Stock Success

Picking gold mining stocks isn't simple, but the key secret is...
MINING STOCK analyst Eric Lemieux joined Laurentian Bank Securities in 2008.
Having worked for nine years as a consultant responsible for applying Regulation NI 43-101, Lemieux has also worked at the Montreal Exchange, and also managed exploration projects for Cambior, Noranda and Soquem.
Holding two masters degrees (in mineral economics and in metamorphic-structural geology) Lemieux explains to The Gold Report how the big secret to successful gold stock investing in fact starts with people...
The Gold Report: Eric, your top stock pick in 2013 outperformed the S&P/TSX SmallCap Index. What's your recipe for picking stocks in 2014?
Eric Lemieux: The secret to success in picking stocks in 2014 will be simple: management. The senior vice president of Laurentian Bank Securities, who recruited me, asked me a question during my interview way back in 2007: What was the most important element when I was looking at a company? I started to talk about some financial ratios, etc. He began to laugh. He said there are three things: management, management and management. I know that's easy to say, but it is true. It is the team that's behind the company. That's the most important secret for success.
The Gold Report: You're predicting an average gold price of $1400 per ounce in 2014. That's down from the previous estimate of $1750 per ounce. Nonetheless, most observers would call $1400 per ounce optimistic given the current spot price. What gives you confidence that the gold price will rise in 2014?
Eric Lemieux: I'm fairly optimistic. The price of gold is gravitating around $1200 per ounce, so there's a substantial difference. I'm looking at the global picture. Yes, the price of gold has gone down, but it's approaching a floor of production costs. By mid-year the price of gold will be higher.
The Gold Report: Many of the companies you cover operate in Québec, which just passed a new mining act. Is that good news for investors?
Eric Lemieux: By and large, all this is good news for companies operating in Québec. It's not perfect. There are a few irritants, but it is a middle ground – a relatively well-balanced law.
The Gold Report: An application for a mining lease now requires a feasibility study. What do you make of that?
Eric Lemieux: Well, feasibility studies are necessary. A company needs to go through the steps of a feasibility study for the normal process of calling a mineral reserve and getting financing, etc. The industry has to realize certain levels of obtainment and it is a normal process to have feasibility studies to receive the proper permits to achieve the proper level. The new act (as amended) states that an application for a mining lease must be accompanied with a scoping study and market study; note that previous Bill 43 had proposed a feasibility study for securing second and third transformation. The new dispositions are fair and less burdensome.
The Gold Report: Does Québec remain the best jurisdiction in Canada in which to operate a junior mining exploration company?
Eric Lemieux: I would simply say no, but I would point out the positive is that Québec has stopped dropping in the standings. We've gained clarity with the Québec mining law and royalty revisions. All in all, we're not the best jurisdiction anymore, but at least we're not falling down the slope.
The Gold Report: What would you say is the best jurisdiction?
Eric Lemieux: This is an ever-evolving element. What is considered the best jurisdiction today could not be so a year from now. Québec is a case-in-point. It was one of the best jurisdictions a few years ago and it slid down. At least with the passage of the royalty and mining law, the worst is over.
The Gold Report: Despite your optimism for precious metals, you've rolled back almost all of the target prices on the companies you cover, some by as much as 35%. What prompted that action?
Eric Lemieux: General market sentiment has obliged me to remove or decrease substantially my exploration goodwill, which was a proxy of the quality of the teams, the quality of the projects and the general market sentiment. I had to bring that goodwill down, and for certain explorers I had to completely remove it. Having said that, companies that are well managed, have a good portfolio of projects and are able to sustain a minimum of activities will be poised to bounce back eventually. Although I brought down the target price, I kept my recommendations. That's a powerful statement. I just needed to effectively downsize some of the expectations.
The Gold Report: What's going to keep you optimistic in 2014?
Eric Lemieux: I'm optimistic. It was a difficult year for the mining industry in 2013. The fundamentals are still strong and the long-term story is solid. I believe that this will be able to set in during 2014. Companies have been tightening their belts and streamlining operations. Juniors are going back to the basics. There's no more waste. There's been a reality check. The companies that have been able to survive and sustain a minimum of operations and activities are going to be set for 2014.
The mining industry is a necessity. There's always a reason to go out and search for metals and commodities because the population continues to grow and needs resources. It may be through electronic devices. It may be through food or infrastructure. The overall portrait is interesting and positive. I'm optimistic for 2014.
The Gold Report: Thanks for chatting today. I've enjoyed it.
Eric Lemieux: You're certainly welcome and as we say in French – merci!

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