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Mutual Fund News

Investor demand powering gold's bull run

swon@globeandmail.com

WHAT ARE WE LOOKING FOR?

Top stocks in mutual funds.

This is our third look this week at what the pros are buying. You can get stock tips or gain insight into a fund by checking out the top securities. They are available at the end of the quarter or month on the firm's website. Today, we examine AGF Precious Metals at agf.com.

ABOUT THE FUND The $543.6-million precious metals equity fund has been run by Bob Lyon of AGF Management Ltd. since April, 2008. The fund, which holds both large and smaller companies, has about 8 per cent in gold bullion or the equivalent.

AGF Precious Metals has surged 48 per cent this year to Tuesday, and is up 42 per cent for the year ended Sept. 30.

With gold breaching the $1,000 (U.S.) per ounce level recently, Mr. Lyon is still bullish. "We do see gold over the [next] 24 months getting into the $1200- to $1,500-range," he said.

While the price could still retreat, he suggests a higher base has been set: "A low gold price may look like $900."

Gold-mine supply continues to dwindle, while investor demand - such as from exchanged-traded funds - is offsetting falling demand for the metal for jewellery, he said. "Even central banks have been pulling back their sales."

WHAT DID WE FIND?

Glitter in precious metals stocks from their lows.

"It looks like gold stocks are discounting more like $850 an ounce [for gold] in the price of the shares today," Mr. Lyon said. "I don't think you need a huge move in the underlying bullion price to get these stocks moving appreciably higher."

The outlook for Eldorado Gold Corp. , which has mines in Turkey and Greece, is improving with its purchase of Sino Gold Mining Ltd. in China, he said.

Eldorado should double production to more than one million ounces over the next three to four years, he added.

That will lead Eldorado to senior-producer status, with its stock trading at a higher multiple, Mr. Lyon suggested.

Mr. Lyon has an $18-target on Eldorado over 18 months.

Iamgold Corp. , a gold miner with projects in North America, Africa and Latin America, is more of a turnaround story, Mr. Lyon says. Its costs are declining, while some projects could take production to in excess of 1.3 million ounces annually in three years, he said He has a $19-target on its stock over 12 to 24 months.

Goldcorp Inc.'s potential stems from big projects like its Penasquito mine in Mexico, and Pueblo Viejo mine in the Dominican Republic, which is a joint venture with Barrick Gold Corp., Mr. Lyon said.

"Its Red Lake mine [in Canada] is still performing extremely well today. It's not easy for large-capitalization stocks to grow, but Goldcorp still has projects for the next couple of years to be able to do that."

His target on Goldcorp is $50 within two years.

***

Top holdings for AGF Precious Metals Fund to Sept. 30, 2009
Company nameSymbol$ Price (Oct. 27)52-wk high $52-wk low $YTD % price chg% Yield P/EMarket cap. ($-mil)Volume
Agnico-Eagle MinesAEM-T69.0577.3227.5100.397.310,769.6996,737
Central Fund of CanadaCEF.A-T14.2915.99.954.690.1n/a2,643.867,444
Eldorado GoldELD-T11.8413.093.5122.69023.24,397.14,006,862
Goldcorp Inc.G-T40.1246.4518.384.510.51929,344.93,153,872
Iamgold Corp.IMG-T14.2216.973.0487.110.57115,221.22,444,817
Inmet MiningIMN-T60.1669.4812.15207.250.318.23,375.4899,096
Kinross GoldK-T20.325.229.85-9.780.5n/a14,105.56,482,537
New GoldNGD-T4.134.760.94133.330n/a1,469.23,714,097
Osisko MiningOSK-T7.179.241.4896.980n/a1,878.82,447,523
Randgold ResourcesGOLD-Q69.976.9723.2759.150.2n/a5,366.21,042,333
*Excludes Fresnillo PLC ranked No. 10 in September
Source: Company, Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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