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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: d:oug who wrote (59228)	10/2/2000 9:11:56 AM
From: Alex	Read Replies (2) \| Respond to of 116763

Gold 'mega-merger' predicted Gold stocks to recover John Schreiner Financial Post VANCOUVER - A turnaround is near in dismally depressed gold stocks, says a major research report from the precious metals analysts at Salomon Smith Barney in New York. The report, a copy of which was obtained by the Financial Post, also predicts a significant new wave of takeovers, with a "super major" gold producer emerging. "Long-suffering and self-conscious gold investors have all but given up," said the report. "We believe they shouldn't. We believe that gold has found a protracted bottom and that quality companies combining liquidity, survivability and leverage are undervalued -- and positioned to drive industry consolidation." The report, written primarily by Leanne Baker, John Hill and Graeme Newing, contends that gold, on fundamentals of supply and demand, will rise above the current US$275 range. "The equilibrium gold price is well above US$300 per ounce," the report said. "We maintain our estimate of US$325 for 2001." On the supply side, the analysts forecast there will be a 24% supply deficit this year, or a shortfall of 1,000 tonnes, with mine output far short of demand. The mine output is further reduced by mine closures since the "industry [is] economically unsustainable at US$275 per ounce. Mine supply is set to fall as a grinding three-year bear market takes its toll on producers." Gold production fell last year in each of the five top producing nations (South Africa, the United States, Australia, Canada and China) and the analysts believe this "trend will accelerate if gold were to stay in the US$250 to US$280 per ounce range." The so-called "disaster-level" prices of the past three years also have led to a 70% collapse in exploration spending. The report dismisses the prospect of more central bank selling of gold as the major factor depressing the gold price. "Certainly, gold suffers from a tremendous inventory overhang, in the form of bank and private holdings representing the totality of historic production," the authors admit. "Yet this is nothing new and fails to explain gold's behaviour in the past three years." The Salomon Smith Barney team relate the depressed gold price to the continuing attraction of investors to the American dollar and U.S. assets. "Conversely, gold prices have been quite strong in terms of the currencies of major producing and consuming countries," they wrote. "It is clear that gold has served its role as a store of value in key Asian markets." Because gold stocks are so out of favour, consolidation is gathering steam in the sector. Twenty publicly traded companies have disappeared since 1994, mostly by being taken over. The report names nine others it says are "going" and 18 whose futures are up in the air. The analysts name only four survivors: AngloGold Ltd., Barrick Gold Corp., Newmont Mining Corp. and Placer Dome Inc. "The top 10 gold miners account for roughly 40% of global production, a threshold achieved by between three and five of the largest producers of aluminum, copper, nickel and zinc," the report said. "At the same time, market capitalizations remain paltry -- with the largest, Barrick Gold, standing at US$6-billion and only four companies above the US$2-billion mark." "We believe the insular, unloved gold sector can only 'grow by shrinking' and that the industry will be dominated by a handful of 'super majors' within the next three years," the report said. "We would not be surprised by a mega-merger aimed at establishing a flagship name with market capitalization and liquidity to dominate the sector." jschreiner@van.nationalpost.com nationalpost.com