Harris analyst gets bearish on gold stocks
Placer labelled a 'sell'
nationalpost.com
January 8, 2002
Steve Maich
Financial Post
Gold mining stocks have caught fire in the past six weeks, and an analyst at Harris Partners say they've gotten too hot to hold.
Analyst Michael Fowler downgraded Iamgold Corp. and Placer Dome Inc. to "sell" from "hold" yesterday, explaining the stocks look overpriced given his conservative view on the price of gold in 2002. Of the 17 mining stocks Mr. Fowler covers, he rates 13 "sell" and two "hold."
................................................................................................................................
After watching the mining group surge 16.9% in 2001, its best year since 1993, Mr. Fowler said he doesn't believe these ideal conditions for gold stocks can hold up much longer. "If you believe the gold price will go sideways in 2002, then the valuation multiple on these stocks is very high. I think short-term interest rates will go up as a recovery is seen and that will tend to depress the valuation multiples."
The recent run in the stocks has left several priced dangerously high, according to Mr. Fowler. He predicts the gold price will average US$275 per ounce in 2002, US$3.60 below where it closed yesterday. And if that prediction comes true, and stocks fall back to their traditional valuation range of 1.5 to three times net asset value, Dayton Mining Corp. could be in for a 52% drop, while Cambior Inc. may drop 49% and Glamis Gold Ltd., a market darling for the past several months, might stumble 42% to the analyst's target price of $2.
That call stands in stark contrast to analysts at Merrill Lynch, who published a report to clients yesterday predicting that the best returns in the current gold rally could be just ahead. The brokerage's team of gold analysts, including Michael Curran and Michael Jalonen, estimate that the price of gold will average US$280 per ounce in 2002. "We are currently in the 14th month of a bull cycle for gold," the analysts said. "Historically, the average duration of a bull cycle for gold has been 19 months, with much of the returns of the cycle gained in the last few months of the bull run." |
