Until recently, gold never played a role in the investment strategy of Arnold Schmeidler, president of investment firm A.R. Schmeidler. Now, he's buying gold shares as a play against the dollar's weakness, precipitated by the ballooning U.S. deficit. And he expects Japan, China, and Malaysia to add to the meager gold holdings in their central bank reserves.
Schmeidler's top pick: Big Board-listed Kinross Gold (KGC ), now at 7 a share, which became the fourth-largest North American producer in January, when it merged with Echo Bay Mines and TVX Gold. Newmont Mining owns 14% of Kinross. Although Kinross operates in Africa, Australia, South America, and Russia, two-thirds of its output comes from the U.S. and Canada. Kinross expects to produce 1.9 million ounces in 2003 and 2 million in 2004. The stock will double, predicts Schmeidler, if gold reaches $425 an ounce -- which he sees in less than a year -- up from $350 now. At $425, he sees earnings rising to 60 cents a share, from an estimated 16 cents in 2003. Kinross reaps big gains from a jump in gold: It ties only 5% of its future output to a fixed price. Most producers hedge to protect against falling prices. But they don't get to sell at higher prices.
Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial