The Strong Case for Gold and Natural Resource Equities

Markets ETF Trends

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By Frank Holmes

Last week I attended the Denver Gold Forum along with three other U.S. Global Investors representatives, including our resident precious metals expert Ralph Aldis.

I was happy to see sentiment for gold way up compared to last year’s convention, as was turnout. I was also pleased to see Franco-Nevada, Silver Wheaton and Royal Gold in attendance, all of which I’ve written extensively about.

One of the most interesting presentations was held by Northern Star Resources—the third biggest listed gold producer in Australia, a dividend payer and a longtime holding of USGI. I’ve always appreciated Northern Star’s insistence on being a business first, a mining company second. This shareholder-friendly mantra is reflected in its stellar performance.

Compared to other companies in the NYSE ARCA Gold Miners Index (GDM), Northern Star is a sector leader in a number of factors, including five-year cash flow return on invested capital. Whereas the sector average is negative 1.6 percent over this period, Northern Star’s is a whopping 27 percent, the most of any other mining company in the GDM.

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This has helped it return an amazing 800 percent over the last five years as of September 23. Compare that to the GDM, which returned negative 56 percent over the same period.

Australian gold miners as a whole trade at an impressive discount to North American producers, 5.7 times earnings versus 8.3 times earnings, according to Perth-based Doray Minerals.

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