GOLD STOCKS NEWS - Gold stocks rallied, as the Market Vectors Gold Mining ETF (GDX) gained $0.41 to $42.91 this morning on the back of a stable gold price and weaker U.S. dollar. After three straight days of declines, the GDX rallied alongside the broader market as gold stocks benefited from the gold price stabilizing near $1,100 per ounce and the dollar declining 0.6% versus the euro. For the second consecutive day, two gold stocks with African-based operations - Golden Star Resources (GSS) and SEMAFO (SMF.TSX) - were in the news.

The Globe and Mail, Canada’s most widely-circulated national newspaper, reported that Golden Star Resources and SEMAFO were once again highlighted by Kevin MacLean - manager of the Sentry Select Precious Metals Growth Fund - recently named the top precious-metals equity fund manager by mutual fund rating firm Lipper. Mr. MacLean’s fund has a 25% annual return over the past five years and an 8.5% over three years, concentrating on small-cap gold stocks that can appreciate without relying on a rising gold price.

The fund manager noted that Golden Star Resources - which comprises 0.4% of the GDX - is the “cheapest stock” of all the established gold producers he covers - given its market capitalization of $750 million and a 14% free cash flow yield. MacLean also noted that gold production and cash flow are both expected to grow in 2011.

MacLean subsequently highlighted Canadian-based SEMAFO (SMF.TSX) - which is not a component of the GDX - as his second cheapest gold stock based on valuation, and went on to say that “qualitatively I think they have faster, more sure growth prospects than Golden Star. ” In addition, he speculated that “a number of larger miners would like to buy them and SEMAFO has resisted selling themselves too cheaply. ”

This Globe and Mail report was the second time MacLean stated his bullish outlook for gold stocks in 2010. On January 19, in an interview with The Globe and Mail, the precious metals fund manager stated that gold “is a commodity which has had a persistently declining supply, and now the central banks have backed away from selling it. We are at the lowest level of supply in at least 15 years. ” In terms of specific gold stocks, MacLean said that his favorite ones at the time were Golden Star Resources (GSS), SEMAFO (SMF.TSX) and Red Back Mining (RBI.TSX), as each has operations in West Africa, a high cash-flow yield and a proven track record of easily discovering gold. As for large-cap gold stocks like Newmont Mining (NEM) and Canadian-based Barrick Gold (ABX) - two of the largest components of the GDX - MacLean considered them to be “dead money in a flat gold price environment. ”

As for his top pick amongst gold stocks, MacLean recommended purchasing shares of Golden Star Resources because the gold mining company has overcome operating issues that have previously been a cause for concern. The gold miner also has the potential to substantially increase reserves moving forward through exploration success. MacLean has a C$7.00 ($6.63) price target on shares of Golden Star, which are currently trading at C$2.97 ($2.82).