World’s top gold stocks
Barry Sergeant
Posted: Wed, 16 Aug 2006 14:00 | © Moneyweb Holdings Limited, 1997-2006
Recent counter-intuitive moves in the dollar gold bullion price have exasperated many investors, and ongoing evidence of cooling US and Chinese economies has taken the shine off the resources sector for the meantime. But investors prepared to take a view beyond the short-term should find some comfort in an update on the outlook for the global gold sector by RBC Capital Markets.
Assumptions on the gold bullion price are critical to any forward-looking take on gold stocks; for what it’s worth, there appears to be something of a consensus that the price will build to $700 an ounce, sooner or later, from current levels around $625. Paul Walker of Gold Fields Mineral Services is just one with a bullish bias, and anticipates the $700 an ounce level by the end of this year.
On Wednesday, the World Gold Council said global economic and geopolitical uncertainties should continue to foster strong investment in gold throughout 2006, but a more stable price scenario would be needed to turn falling demand for gold jewelry.
The outlook for the dollar is also of great importance for investors in gold bullion; the consensus here is that the dollar will enter another protracted bear market, sooner or later. A weaker dollar is always good for the dollar gold bullion price; the two variables have exhibited an inverse correlation of more than 90% over the past ten years.
More specifically, RBCCM’s dollar gold price forecasts for 2006, 2007 and 2008 are stated as $620, $670 and $710 an ounce, respectively. Using this key assumption, among many others, the outlook for price action on the majority of gold stocks over the next 12 months is positive, and in many cases, investors stand to be well rewarded.
In the Tier I gold producers league, RBCCM sees Barrick, the No 1 gold digger by size and market capitalization, moving from current levels around $32 a share to as much as $47 over the next 12 months. Newmont could move from around $53 to $71 a share; the stock is rated as “outperform,” along with Kinross Gold, Freeport McMoRan, and AngloGold Ashanti. Barrick, however, is rated as “sector perform”, along with Goldcorp and Newcrest. Gold Fields is rated as “underperform”, with stock price action seen as limited in a likely move from current levels around $20 a share to $25.
By contrast, Harmony is ranked as an “outperform” and is seen as likely moving from current levels around $13.50 a share to as much as $20. RBCCM points out that the bulk of Harmony’s value lies in its growth projects in South Africa and Papua New Guinea. With around 90% of current production stemming from South Africa, Harmony is seen as being “under severe financial strain”, due to the strength of the South African rand relative to the dollar.
It may be of some concern that RBCCM comments further that Harmony’s financial state “could potentially jeopardize the rate of development of new projects, negatively impacting the company’s net asset value (NAV)”. Among the Tier I grouping, Harmony offers significant leverage to the rand, but if the dollar moves to protracted weakening, a stronger rand will do Harmony little good.
RBCCM’s top pick emerges from its analysis of Tier II producers, in the name of Eldorado Gold, anticipated to increase from around $4.50 a share to some $7 a share over the next 12 months. A number of well-known names score “outperform” ratings in The Tier II group in the names of IAMGOLD, Lihir Gold, Centerra Gold, Highland Gold, Hecla Mining, Jaguar Mining, and Bema Gold.
Stocks in the Tier II sector with “sector perform“ ratings take in Glamis Gold, Agnico-Eagle Mines, Celtic Resources, Yamana Resources, Randgold Resources, High River Gold Mines and Western Areas. Meridian Gold, Peter Hambro Mining and Cambior are classified as “underperform”.
In the final category, emerging gold producers, RBCCM lists seven stocks winning the “outperform” accolade, in the names of Ballarat Goldfields, Perseverance Corporation, Axmin, Banro, European Goldfields, Oxus Gold and Anatolia Minerals. Four “sector perform” stocks complete the list, in Alamos Gold, International Minerals, Trans-Siberian Gold, and Bendigo Mining.
In previous analysis, RBCCM identified a plethora of gold stocks listed in North America that may become takeover targets, given the rush by Tier I and Tier II producers to find “replacement ounces”, as demanded by investors in the modern era. That study suggests incredible energy on the part of those participating in the new “gold rush”, and a willingness to seek and mine gold in every corner of the earth.
Beyond most stocks listed in the “emerging producer” category, the further list of gold juniors includes, in alphabetical order: Comaplex Minerals (Nunavut); Crystallex (Venezuela); Cumberland Resources (Nunavut); Dynasty Metals (Ecuador); Etruscan Resources (West Africa); European Goldfields (Greece); European Minerals (Kazakhstan); Farallon Resources (Mexico); Gabriel Resources (Romania); Gold Reserve (Venezuela); Great Basin Gold (South Africa); Greystar Resources (Colombia); International Minerals (Ecuador); Kimber Resources (Mexico); Kirkland Lake Gold (Ontario); Lake Shore Gold (Ontario); Linear Gold (Mexico); Metallic Ventures (Nevada); Metallica Resources (Mexico, Chile, USA); Minefinders Corp (Mexico); Northern Mining Exploration (Tanzania, Eritrea); Miramar Mining (Nunavut); Moto Goldmines (DRC); Mundoro Mining (China); Nevsun Resources (Mali, Eritrea); Orezone Resources (West Africa); Osisko Exploration (Canada, Brazil); Seabridge Gold (Canada); Southwestern Resources (China, Peru); Stratagold Corp (Canada, Guyana); Viceroy Exploration (Argentina), and Western Goldfields (California). |
