A View of Vista

05/14/2004 12:00 am EST

Focus:

Adrian Day

Chairman and CEO, Adrian Day Asset Management

"Gold may trade in a range for a while, perhaps for months; it will take time to repair the damage that has been done, even though we may have seen the low," says Adrian Day, editor of The Global Analyst. He calls his latest buy a "different kind of gold company."

"Clearly, the downside move in gold is overdone in the short term. We would caution, however, that there won’t be a quick recovery to the recent highs (absent some new development). Serious damage has been done; the moving averages may now become resistance. China’s credit crunch may be prolonged and deep; there is no reason to believe the Chinese monetary authorities will be able to orchestrate a soft landing from the bubble any more than the US Fed could. And though the dollar may have seen rally highs, it is unlikely that it will fall sharply against the Euro in the near term.

"And if gold stays down for any period, there would be further erosion in the stocks. This indicates one should keep some power dry and chose buying spots carefully. At the same time, it is precisely during periods of weakness when you should buy, not after the metal and stocks have already rallied. Clearly, given our long-term outlook for significantly higher gold prices, we are looking for opportunities to buy, just cautiously. In this light, we have a new recommendation in the gold sector:

"Vista Gold (VGZ ASE) is a different kind of gold company. Rather than mine the stuff, it has a policy of postponing production. Vista closed its last producing mine some years ago and took advantage of the downturn in gold to acquire high-cost, but proven ounces at low prices. It now has over 12 million gold resource ounces at 11 different projects, centered in Nevada, but also in Mexico and Bolivia. Though high cost when acquired, they are generally quality ounces, generally proven deposits, three of which have bankable feasibility studies. Given the increase in gold’s price since these properties were bought, several could now be mined profitably.

"Vista’s plan is to convert more of the advanced stage deposits to proven status, enhancing the properties’ values, but not to mine yet, since the company believes that the gold price is going significantly higher in the next few years. The company may, however, take advantage of higher prices in the meantime to sell some properties to raise cash so it can enhance other projects. Because of this game plan, Vista is often called ‘a perpetual call on gold’. At this time, each share is backed by almost one ounce of gold resource in the ground, making it inexpensive on a value basis. The stock has been hit hard in gold’s recent price collapse, as would be expected, down from over US$6 just a month ago. Buy up to $3.80."

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