gold prices

Economic statistics are big news these days, but they have a weak link at best with the value of your investment portfolio. A surprisingly good economic statistic can make the stock market jump. But a bad surprise can come along and reverse that move the next day. In retrospect, it’s clear that economic turning points do have an impact on the market. But nobody can consistently predict these points. That’s also true of key economic factors like interest rates, oil and gold prices....

Economics questions are everywhere these days. Do we face a double-dip recession? Is the economy headed for the proverbial “seven lean years”? Should Obama launch another stimulus package? This brings to mind a famous quote from Peter Lynch, world champion mutual-fund manager of the 1980s and 1990s: “If you spend a dozen minutes a year worrying about the economy, you’ve wasted 10 minutes.” Lynch’s point is heresy to economists, but gospel to successful investors....

MAJOR DRILLING $21.93 (Toronto symbol MDI; SI Rating: Speculative) (www.majordrilling.com; 1-866-264-3986; Shares outstanding: 23.7 million; Market cap: $520.1 million) is a large contract-drilling company that mainly serves the mining industry. In the three months ended April 30, 2009, Major Drilling’s revenue fell 60.9%, to $66.4 million from $170 million. It lost $4.6 million, or $0.19 a share, compared to a profit of $25.5 million, or $1.07 a share, a year earlier. The latest quarter’s earnings included a $2.1-million restructuring charge. Cash flow was positive, at $2.8 million, or $0.12 a share. In January, many of Major’s customers delayed or cancelled their exploration plans because of the recession and lower gold and base-metal prices. Drilling remained slow through February, March and April....

NEWMONT MINING $42.18 (New York symbol NEM; Shares outstanding: 479.0 million; Market cap: $20.2 billion; SI Rating: Average) has completed the purchase of the 33.3% of the new Boddington gold mine, in western Australia, that it does not already own from AngloGold Ashanti. Newmont paid $1.1 billion. Newmont took advantage of rising gold prices earlier this year to sell $517.5 million in bonds and 34.5 million common shares for a total of $1.7 billion. The company will use the funds to pay for the Boddington acquisition, as well as to expand production at its other mines. Boddington will begin operating later this year, and will increase Newmont’s annual production by at least 10%. It should also immediately add to the Newmont’s earnings. Boddington’s reserves should last 20 years, so owning all of it enhances Newmont’s long-term prospects....

ATLANTIC TELE-NETWORK, $38.46, symbol ATNI on Nasdaq, jumped 50% this week after it announced plans to buy more than 800,000 wireless accounts from Verizon Wireless for $200 million in cash. The subscribers are mostly in rural areas of Georgia, North Carolina, South Carolina, Illinois, Ohio and Idaho. Verizon had to sell these accounts as part of the regulatory approval for its recent purchase of Alltel. Competition regulators still need to approve the deal, but it should close by the end of this year. Atlantic is paying just $250 per subscriber. That’s much less than the $1,567 per subscriber that AT&T paid when it bought wireless accounts from Verizon last month. (AT&T’s purchase was also related to the Alltel acquisition.)...

Recently some readers have asked what we think of U.S. newsletters that predict a total collapse in stock prices. The short answer is that I disagree with these publishers. But the best answer has to include some industry background, and point out that I also disagree with their approach to the newsletter business. We aim to publish balanced, realistic investment advice that you can use to help you invest your money, make it grow over long periods, and generally prepare for a comfortable retirement....

CENTERRA GOLD $5.19 (Toronto symbol CG; SI Rating: Speculative) (416-204-1953; www.centerragold.com; Shares outstanding: 216.3 million; Market cap: $1.1 billion) is still negotiating with the government of Kyrgyzstan over Centerra’s Kumtor gold mine. The parties are negotiating the size of the government’s stake in Kumtor, as well as a new tax regime for the mine. The country’s finance minister, Marat Sultanov, recently told the Kyrgyz media that the government expects to sign a new agreement with Centerra next month. Centerra still has long-term potential, but its focus on central Asia and Mongolia involves considerable risk. The stock has risen 419% since October on higher gold prices, as well as optimism on the possible settlement, but the government of Kyrgyzstan may want to reopen negotiations with Centerra in the future. We think now would be a good time to get out. Centerra Gold is now a sell.

IVERNIA INC., $0.15, symbol IVW on Toronto, could move down now that Griffin Mining (symbol GFM on London) has withdrawn its hostile takeover bid. The cash offer was worth $27 million (Canadian), or $0.15 per Ivernia share. Ivernia develops and explores for minerals. Its main asset is its Magellan lead mine in western Australia, which is currently closed. On April 1, 2009, Ivernia amended the terms of $20 million U.S. worth of convertible notes held by Sentient Global Resources Fund II. It also issued new notes to Sentient, which raised $10 million U.S. in cash....

FORD MOTOR CO., $3.25, New York symbol F, reported that its U.S. sales dropped 40.9% last month, to 131,465 vehicles from 222,337 in March 2008. However, sales were up 30% from the previous month. Ford has launched a new insurance plan that will cover a buyer’s monthly car payments for up to a year if they lose their job. This plan will probably hurt Ford’s earnings. However, Korean carmaker Hyundai uses a similar incentive to bolster its sales. Other carmakers, including General Motors, plan to follow suit. Unlike GM and Chrysler, Ford has not asked for government assistance. Ford could increase its market share if these competitors go bankrupt or cut production further. However, the bankruptcy of GM and Chrysler would probably force several parts suppliers to go out of business. A parts shortage would hurt Ford’s ability to keep operating....

Gold moved up from $300 an ounce in the early part of this decade to over $1,000 in 2008. It fell to $700 in November 2008 as the stock market bottomed out. Like the stock market, gold has regained some of its losses and now trades at around $900. We feel gold could eventually surpass its recent highs with a corresponding impact on many gold stocks. That’s mainly because investors fear that low interest rates and government stimulus spending will spur inflation. Gold prices, and gold investing, should continue to gain as the credit crisis makes it harder for gold companies to fund new projects and expand production. Regardless of what happens with gold investing in general, speculative and promotional gold stocks will make significant gains from time to time on hopes of a gold discovery. You can say something like that about any sort of speculative or promotional stocks, but most investors who dabble in them still wind up losing money. That’s because it is much easier to launch penny gold stocks than to find a gold mine....