Gold price outlook cuts into 'sell' calls UBS' Michael Fowler
Paul Haavardsrud -- Financial Post
Following the recent US$25 jump in the bullion price, you can hardly move without bumping into a gold bug these days, but with the promise of more gains to come, even non-bugs are warming up to gold stories.
Until yesterday, Michael Fowler, an analyst at Harris Partners in Toronto, had tagged 15 of the 17 gold stocks he covers with a "sell" rating.
After raising his average gold price estimate to US$300 an ounce for 2002 and establishing a US$325 estimate for 2003, Mr. Fowler has cut his sell recommendations to seven.
"There has really been a little too much enthusiasm short term ... the gold bugs have really been coming out of the woodwork," said Mr. Fowler. "I'm looking for a bit more of a cautious rise, but a rise nonetheless in the gold price."
Analysts are as likely to peg their gold outlooks to U.S. interest rate policy, safe haven capital flows or inflation fears, but Mr. Fowler's call is driven largely by a more mundane analysis of supply and demand. "Interest rates are a factor, but there's not just one factor in the gold market.
"The fundamentals of the gold mining business aren't fantastic right now ... there's been a lack of exploration and world gold production is going to start falling."
This falling production is poised to meet increased demand, particularly from jewellery makers, which adds up to a higher gold price, he said.
Previously, TVX Gold Inc. (TVX/TSE) was the only stock garnering a "buy" rating from the analyst, while Barrick Gold (ABX/TSE) at "hold" had also escaped the sell recommendation.
Based on expectations for US$325 gold Mr. Fowler now has buy ratings on Barrick, Newmont Mining Corp. (NEM/NYSE), Placer Dome Inc. (PDG/TSE), Agnico-Eagle Mines Ltd. (AGE/TSE), Iamgold Inc. (IMG/TSE) and Repadre Capital Corp. (RPD/TSE), along with TVX Gold Inc.
Goldcorp Inc. (G/TSE) and Glamis Gold Ltd. (GLG/TSE) were raised to "hold."
Even higher prices couldn't overcome higher cost structures, a declining production picture or other company specific issues at Bema Gold Corp. (BGO/TSE), Cambior Inc. (CBJ/TSE), Dayton Mining Corp. (DAY/TSE), Echo Bay Mines Ltd. (ECO/TSE), Eldorado Gold Corp. (ELD/TSE), Kinross Gold Corp. (K/TSE) and Meridian Gold (MNG/TSE), all of which Mr. Fowler still sees as overvalued, maintaining his "sell" recommendation.
He sees the most upside (up 39% from current levels) for TVX. The biggest upgrade in target is for Agnico, which rises from $11 to $26. It closed yesterday at $19.89.
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