June 14, 2009 / 2:35 PM / 9 years ago

BAY STREET-Strong gold price augurs well for some juniors

* Strong prospects seen for Lake Shore, Romarco and others

* Gold likely to rally on inflation fears, weak dollar (In U.S. dollars unless noted)

By Euan Rocha

TORONTO, June 14 (Reuters) - A strong gold price has revived interest in Canada’s junior gold miners, and while many remain strapped for cash, a few are set to outpace the pack.

The juniors most likely to outperform are the ones with capable management, the ability to raise funds and that have high-potential projects close to production.

“It’s good to have a pretty deep team that has experience on the operating side of things and experience in putting assets into production,” said M Partners analyst Tara Hassan.

“But it also helps if they have experience with the capital markets and understand the intricacies of dealing with the market.”

Hassan sees strong prospects for Toronto-based Lake Shore Gold Corp LSG.TO, which is developing a 100-percent-owned gold project near Timmins, Ontario.

The company recently started processing development ore from the site and expects to produce 30,000 ounces of gold this year, with overall production ramping up to about 200,000 ounces a year by 2011 as the company expands exploration activity and mill capacity.

“Lake Shore Gold has a really strong balance sheet, the company is putting one asset into production and looking to ramp up work on others,” said Hassan, who has a “buy” rating and a C$3 price target on the stock, well above the C$2.46 level at which the stock is currently trading.

GMP Securities analyst Jacques Wortman and Wellington West analyst Paolo Lostritto also see strong potential in Lake Shore, which is 40 percent owned by United Kingdom-based precious metals producer Hochschild Mining (HOCM.L).

Wortman is also bullish on exploration company Romarco Minerals R.V, which owns the Haile mine in South Carolina.

“We believe that there is decent potential for Haile to support higher-grade underground mining operations at some point in the mine life,” Wortman said in a note to clients, adding that this could result in both an increase in annual production and an extended mine life.

Romarco is headed by Diane Garrett, a former analyst and fund manager at U.S. Global Investors, and while Garrett lacks an operations background, analysts note that she has brought in a strong team of mine operators.

Romarco, is one of a few junior miners with a strong institutional investor base. Almost 50 percent of its shares are held by a handful of institutional investors, including Sprott Asset Management and U.S. Global Investors.


However, the positive outlook for these juniors assumes that the price of gold remains strong.

Although trading near record levels, the price of gold has been unable to hold above the $1,000 per ounce barrier that it crossed briefly in February. Spot gold XAU= was about $940 an ounce on Friday.

Lostritto of Wellington West sees a slight correction in the price of gold this summer, before a new rally toward the end of this year.

“When I look at macro indicators this market makes me nervous. I think we’ve had a good run in the juniors here and it’s probably wise to take some money off the table in the event that there is a pull-back,” he said.

“At the same time, there are some good (junior) names out there that have good value. If we see a correction they are likely going to suffer nonetheless.”

But Lostritto, who touts the prospects of San Gold SGR.V and Victoria Gold (VIT.V), remains bullish on the price of gold and gold equities over the long term — a sentiment shared by most analysts.

Investors view the precious metal as a safe haven amid turbulent markets and a hedge against inflation.

“The most important driver for gold is the expectation that the trillions of dollars in bailouts that are being created in Washington will lead to a much lower U.S. dollar, which means a much higher gold price,” said John Ing, president of Toronto investment dealer Maison Placements.

“Less gold is coming to market, while demand is growing. That can only mean one thing. The price of gold will go higher.” (Editing by Janet Guttsman)

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