For Subscribers

Get the complete article now!

TWST: Todd, to what do you attribute the improvement in the price of gold over the past few weeks?

Mr. Hinrichs: Over the past few weeks, several major gold producers that are notoriously aggressive hedgers assumed a less aggressive stance toward hedging in today's market. And this less aggressive stance, by major gold producers, pushed gold prices a little bit higher. Less hedging activity, the perception that Asia is turning around very quickly, and the advent of the Washington Agreement are three very important reasons why gold prices continue to rally off their mid-1999 lows in the low $250s. Now gold is trading at roughly $308 per ounce.

TWST: Which shares meet your criteria?

Mr. Hinrichs: In my coverage, there are seven companies that qualify as institutionally acceptable -- i.e., their balance sheets and cash flows are robust enough to support corporate longevity, share prices are high enough to support entrance and exit by funds, and they are currently producing gold. The shares that I view as institutionally acceptable include Agnico-Eagle Mines (NYSE:AEM), Barrick Gold (NYSE:ABX), Battle Mountain Gold (NYSE:BMG), Homestake Mining (NYSE:HM), Kinross Gold (NYSE:KGC), Newmont Mining (NYS:NEM), and Placer Dome (NYSE:PDG). The number of institutionally acceptable stocks in my gold coverage is down from about 18 to seven, and it's just because the price of gold is down, not because company dynamics are poor across the sector.

TWST: You say that you also like Placer Dome.

Mr. Hinrichs: Yes, I like Placer Dome. They have a solid backbone of operations, very low-cost operations, a very manageable hedge book, and they also have some higher-cost operations that would, in times of higher gold prices, become very attractive. And that gives the company leverage to higher gold prices. So because of the company's backbone of low-cost operations, downside is somewhat limited, while upside remains very good for times of higher gold prices. I think it's the stock for all seasons, the company for all gold price environments. They have a hedge book, but it's a somewhat limited, very well managed hedge book. And in fact, Placer is not adding to its hedge position this year.