01/22/2015 7:00 am EST


Stephen Leeb

Founder and Research Chairman, Leeb Group

For the past five years, gold stocks have dramatically underperformed the metal, suggests Stephen Leeb, editor of The Complete Investor.

That reflects the growing difficulty miners have faced in raising production as costs have risen. It also speaks to investors’ skepticism about whether gold can sustain a long-term uptrend.

But we think that gold is still in the early stages of a roaring bull market. And we’re convinced that over the next five years, some of the most rewarding investments will be a select group of small gold miners.

In particular, we like miners that are sitting on large deposits that have yet to be mined. Among this group of potential stars, our top pick is NovaGold (NG).

NovaGold has two major assets. Galore Creek is a world-class copper deposit that also contains both gold and silver. Management likely plans to sell its half interest in Galore (Teck is the co-owner) and focus on its other asset, Donlin, which is half owned by American Barrick.

Located in Alaska—and hence not subject to worries about resource nationalism—Donlin is one of the world’s largest unmined gold deposits. It has about 35 million ounces of easily minable gold reserves and the potential to considerably expand that number with further exploration.

Back-of-the-envelope calculations suggest NovaGold’s enormous potential. With mining costs at around $500 an ounce, NovaGold stands to make around $19 billion.

Infrastructure spending on Donlin shouldn’t require more than $8 billion total, or $4 billion for NovaGold’s share. Subtract this from $19 billion and you end up with $15 billion, more than 10 times the stock’s current capitalization.

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