Ubika Research Senior Gold Analyst Vikas Ranjan provides his updated forecast for the price of gold and discusses the impact India’s recent election will have on the precious metal. He also explains his decision to change the popular Ubika 50 Gold Index to the Ubika Gold 20 and mentions three gold stocks he likes at this time, including one that could be in production within two years or so.
Video transcription follows:
Isis Essery: I recently spoke with Ubika Research Senior Gold Analyst Vikas Ranjan about the gold market as well as the launch of his company’s new weekly Ubika Gold 20 Index. The report highlights 20 promising junior gold producers and developers that are chosen based on various proprietary criteria, including Net Asset Value, resource analysis, and earnings in addition to qualitative factors such as management and geographical risk. Ubika Gold 20 is the successor to the Ubika Gold 50 Index, which since its inception in February 2010, has generated returns 25% greater than that of the TSX Venture Index. All companies mentioned have a market capitalization of between $25 million and $2 billion, with a three-month average daily trading value in excess of $100,000 in addition to a stock price greater than 25 cents. Vikas, in a recent interview, you mentioned that you expect the gold price to end 2014 at about US$1,400 an ounce. Has your outlook changed since making that call?
Vikas Ranjan: No. Our outlook remains the same. We in fact, feel that gold might overshoot that target by the end of this year. We have been pleasantly surprised by this trend of the gold prices around $1,300 levels, so we are watching this level quite closely. If it doesn’t break down below $1,200 in the next month or so, then we might have a higher target than $1,400 per ounce.
Isis Essery: India was the world’s largest gold-buying nation until it was surpassed by China in 2013. With the election of a new pro-business government in India, do you expect gold demand to surge in that country? And what effect will it have, if any, on the global gold price this year?
Vikas Ranjan: We remain optimistic about India’s demand for gold. It has traditionally been the country with the largest consumption of gold and largest amount of gold imports. Recently, China did surpass India as the largest consumer of gold, but I think it’s a tight race between China and India. Both countries are using a lot of gold. Consumers are looking at gold as a safe haven. They have always used gold as a store of value for generations. That is not going to change. In the case of India, we feel more optimistic after these elections that growth will pick up, and as that happens, the Indian economy is very tight in terms of demand and capacity. That will put pressure on prices. As prices go up, inflation happens, gold does even better. So, we feel pretty optimistic about these election results in India and growth prospects and the resulting demand for gold, which may be caused by inflation in the near future.
Isis Essery: Why did you decide to change your successful Ubika Gold 50 Report to the Ubika Gold 20?
Vikas Ranjan: Well, the Ubika Gold 50 was very popular. We had that running for three-and-a-half years, and the intent was to find companies at one place where investors could look at those companies and get information about 50 gold junior companies. The challenge with finding 50 companies is that it’s hard to find those 50 companies, high-quality companies. So we wanted trim down to a more manageable level. At the same time, we did not want to compromise on the diversification aspect. So 20 seemed to be a good number. We also changed the criteria, which we use, to let these companies be in the index. So for example, we now have a minimum market cap criteria of $25 million. We also have some other criteria like volume traded every day. That rules out lots of companies. So we found 20 good companies. And again, we wanted to have a good mix of companies which are at exploration stage, some of them are at intermediate production stage. So, it’s a good mix, provides diversification, and still is a good list, good number of companies, 20 companies. And we have some really good names there in the Ubika Gold 20 now, instead of the Gold 50.
Isis Essery: Junior gold stocks got off to a strong start in 2014, but it’s pulled back since. Does this represent a buying opportunity for investors?
Vikas Ranjan: We think so. Again, it’s harder to say how the markets will react in the coming months, but some of the junior gold stocks, which had good runs in the last six months or so, they have pulled back quite a bit. You can find some high-quality companies which have given up the gains since March. Actually, in some cases, almost 30, 40%, whereas gold hasn’t gone down that much. So there is a disconnect between gold prices and gold stocks right now. Even senior gold producers have gone down quite a bit in the last month-and-a-half. So that really presents an opportunity, an entry point opportunity for investors in some selective, high-quality gold stocks, especially some gold junior stocks.
Isis Essery: Which gold stocks do you like at this time and why?
Vikas Ranjan: So, we have a selection of companies which we like. I would just mention a few names, and they are at very different stages of growth. I will start with a really small, tiny company called Red Lake Gold, which is listed on the Canadian Stock Exchange. The symbol is RLG on that. They have a project in the Red Lake Gold District, which is famous for gold mining. That project is in collaboration, joint venture with Goldcorp actually. Now, that is a company which is less than $2 million market cap right now, has a project which could be housing more than a million ounces of gold. They are exploring, and they plan to advance the project. Now, the risk is that it is very tight in terms of it’s capital, so there may be a risk that they do not have the capital to advance exploration. But if they do, then the upside could be enormous from these levels as they advance the project. So that’s really at the lower end of the market. Then we have, we also like Treasury Metals, which I have spoken about in some of the interviews before. This is a company which is at the much advanced stage. It has resources in the ground, and within 18 months, if everything is on plan, on track, they could be shovel-ready, which means that they could start the project-building phase, and within two years of so, they could be in production, subject to getting regulatory approvals and things like that. Now, this is a company, again, which has come down. One of the great examples, the stock was trading at 60 cents two months ago, now it’s 35 cents. So these are the types of companies which investors could look at and try to get an entry. And the last company, which we still like a lot is Alamos Gold. Now, this is a company which is one of the mid-tier producers, one of the best run companies. It has no debt, more than $400 million in cash sitting on the balance sheet. Now, it has run into some negative sentiment because of the loss in production in some of its mines and also some tax structure changes in Mexico, where its flagship mine is operating. But we think it presents a very good value. The market is not factoring its growth potential and its cash flow potential in the coming years. So those three companies we like at different stages of development and exploration and production.
Isis Essery: Thank you for taking the time for the interview today, Vikas.
Vikas Ranjan: Thank you.
Isis Essery: Be sure to sign up for our newsletter to receive your Ubika Gold 20 Report every Monday morning. For Small Cap Power, I’m Isis Essery.
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