Holmes: Look North for Orion

09/19/2003 12:00 am EST


Thom Calandra

Editor, The Calandra Report

Thom Calandra, is a columnist for CBS MarketWatchthe editor of The Calandra Report  newsletter and an expert on the metals sector. Here, he speaks with Frank Holmes, CEO of U.S. Global Investors, who offers a new pick among speculative mining stocks.

Holmes, Frank"Frank Holmes (pictured at left) told me recently that he is confident gold, copper, platinum (near a 23-year high), nickel (near a 3-year high) and other prices will rise sharply in coming weeks and months. Holmes is a specialist in gold, silver, copper and platinum companies. He's good at sound bites and even better at identifying undervalued gold and copper companies that are making their way from Canada to the American Stock Exchange. On the sound bite part, Holmes tells me that since Sept. 11, 2001, the country went from a budget surplus to a deficit of more than $450 billion, interest rates are at a 40-year low, the dollar is down 15.4% against a basket of currencies, and gold is up 32.8%. (Over the same period, Holmes’ U.S. Global Investors Gold Shares Fund (USERX) is up 149%, and  U.S. Global Investors World Precious Minerals Fund (UNWPX) is up 162%.)

"On the undervalued part, Holmes already has made investors significant profits with several gold and copper miners that were headed to the American Stock Exchange. Here's his latest: Northern Orion Resources (CA:NNO Toronto). Holmes says Northern Orion, with 105 million shares outstanding at $1.90 Canadian apiece, recently bought 12.5% of the giant Alumbrera copper and gold mine in Argentina. ‘We are expecting a significant jump in top-line revenue and bottom-line cash flow this quarter,’ Holmes says. ‘In fact, for the next four quarters, the year-over-year increases in revenue and cash flow will be huge. This will be the first quarter to demonstrate the cash generating power of the Alumbrera deposit. We are forecasting 10 cents a share, and then for the next 12 months, 40 cents a share cash flow.’

"On the valuation scale, this means Northern Orion trades at less than five times cash flow vs. 12 to 15 times cash flow for other mines in its peer group. To be sure, shares of Northern Orion may be a leap of faith for those who don't already own them. The shares have taken a quantum leap of 160% since January." Thom Calandra also notes, "I spent time this week with Northern Orion's chairman, Bob Cross, who is on the board of Russia explorer and producer Bema Gold. On Northern Orion, he tells me, 'If we get a copper-gold up cycle, this thing goes nuclear,' Cross says."

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