In the world of negative interest rates, gold is starting to look good to many investors.LISI NIESNER/Reuters
Fabrice Taylor, CFA, publishes the President's Club investment letter, for which The Globe and Mail provides marketing services and receives compensation.
You'd be hard-pressed to find a more attractive list of shareholders than that of Gold Standard Ventures. The list starts with a self-made billionaire who's built much of his wealth in precious metals, his right-hand man in gold mining, and two gold producers who, it appears, are heading for a bidding war for the company.
If you think, as I do, that gold looks very interesting in a world of negative interest rates, you should consider joining this list of investors. This is a more speculative investment but I think the potential rewards outweigh the risks, especially if gold keeps moving.
Gold Standard owns the second-largest land position on the Carlin Trend, which has produced tens of billions of dollars worth of gold since it was first discovered. They call the Carlin "elephant country" because of the number of massive gold deposits it contains. The Carlin is located in Nevada, probably the friendliest gold-producing jurisdiction in the world.
The billionaire mentioned earlier is Albert Friedberg, a low-profile Toronto-based hedge fund manager. Mr. Friedberg is a big believer in gold, and in Gold Standard, of which his firm owns about 15 per cent. Mr. Friedberg believes gold is in a long bullish uptrend and he has something of a Midas touch when it comes to gold equities, having scored big on such names as Seabridge Gold, which rose quickly from startup to a market value of $1-billion in about a decade – a rare feat in this business.
That company was co-founded by Jim Anthony, an adviser to Mr. Friedberg and to Gold Standard.
Mr. Anthony tells me that what makes Gold Standard attractive, among other things, is the company's reserves per share. "What you want is a high degree of leverage to the gold price, and we've got it."
That leverage seems to be improving as Gold Standard drills new holes that are turning heads and creating a high-grade deposit. Recent results showed strong grades that hint at an economic and highly profitable deposit.
Among those who have take an interest in the deposit are two producers: The first is OceanaGold Corp., a $2.2-billion Australian company that owns 20 per cent of Gold Standard and that continues to invest in the company to maintain that ratio, including a very recent investment of $13.8-million, or $1 a share.
The other is Goldcorp, one of the biggest gold producers in the world, which just this month decided it wanted a piece of Gold Standard and therefore invested $16.1-million (again, $1 a share) to acquire a 10-per-cent stake.
Gold exploration is a tough game, with the constant need to find accretive capital at the top of the list of challenges. But Gold Standard CEO Jonathan Awde tells me his job has been made significantly easier by his shareholder base, which makes raising money a lot easier. Given that the company raised almost $30-million in the past month alone, it's hard to argue with him.
Indeed, Gold Standard has a market value of only $250-million but is also listed in New York, a sign of institutional interest.
In fact, about two-thirds of shares are held by insiders and institutions. That's good for retail owners because it means most of the shares are in "strong" hands and won't hit the market.
This investment thesis is pretty simple: Gold Standard has lots of cash to continue proving out its land position with the drill bit. If it continues to define and improve the resource, the company becomes an obvious target for an acquisition. And with two gold producers already involved, it shouldn't be hard to find a buyer (the deposit is also near other operating mines owned by large producers, including Newmont Mining Corp.)
Smarter minds than mine have already decided that this is an intelligent bet, and the market price, which has improved sharply lately, tells me there could be a lot of upside to come.
And if gold performs as well, investors stand to be very well rewarded.
Will it? Central banks are desperate to manufacture inflation, and they have significant resources at their disposal. I'm willing to bet they'll succeed and that's bullish for gold.
Disclosure: The author owns shares of Gold Standard Ventures.