Geologist digs up miners' dirt

Paul Kingston, 67

Occupation: Retired economic geologist

Portfolio: Enerplus Resources Fund, Penn West Energy Trust, ARC Energy Trust, Canadian Oil Sands Trust, Baytex Energy Trust, Goldcorp, Silver Wheaton,Franco-Nevada, Premier Gold Mines,Sabina Silver, Royal Gold, Kinross Gold,, Gold Wheaton, International Royalty

PRECIOUS METALS EXPERT

It was "look but don't touch" during Paul Kingston's working life. An economic geologist for the Ontario and New Brunswick governments, he was immersed in the exploration and drill results of mining companies, but wasn't allowed to buy their shares.

When he took early retirement, he put a good deal of money into 25- and 30-year bonds that are paying more than 6 per cent. "They're better than an annuity because I get my money back at the end." He also began putting his expertise to work, investing in gold and other precious metals stocks for long-term inflation protection.

CHOOSING STOCKS

An attractive mining company for Mr. Kingston would have half a dozen properties in production, positive cash flow, be profitable and have stable management. He also picks through a company's annual reports and website to assess the properties. "Most have pretty detailed descriptions of geological grades and the property, so somebody like me can say, 'That's a cracking good deposit I'd like to own, so I'll buy a piece of it.' "

WHAT HE AVOIDS

He stays away from companies focusing on countries he deems politically risky, including most South American countries, as well as Russia, Turkey and China. He also dislikes firms where management is getting huge bonuses and salaries. "Their minds aren't focused on shareholder value, they're focused on what they can take out of the company."

ROYALTY TRUSTS

Mr. Kingston is a fan of royalty trusts - companies that borrow money, approach a mine going into production, and buy a small piece of the royalty stream in return for financing. "Royalty companies don't have equipment or operations, they just have a small head office, an accountant, and a few guys who go out and look at these deals."

BEST MOVE

For Mr. Kingston, sitting down a decade ago to develop a long-term investing plan - and deciding that the plan would focus on gold and silver stocks - has proved profitable. Just as important, he says, was sticking with the plan. "Early on, we tended to get a little excited and sold a few things we shouldn't have," he says. "But we learned to roll with the punches and forget about it."

WORST MOVE

Last fall, Mr. Kingston was holding a large number of Silver Wheaton warrants that he converted into shares. That left him with a large capital gain. When the market fell, he sold some shares at a loss to offset his gains for tax purposes. But Silver Wheaton came back so strong that the tax bill was a quarter of what he could have made had he kept the shares.

ADVICE

Mr. Kingston keeps an eye on the Dow/gold ratio, which compares the level of the Dow to the price of an ounce of gold. "When it falls to three or less, then it will be time to get out of gold stocks and into blue-chip stocks."

Want to share your strategies?

E-mail tony.martin@sympatico.ca