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

To: long-gone who wrote (59768)	10/13/2000 10:34:24 AM
From: LLCF	Read Replies (1) \| Respond to of 116759

Subject: Industry Overview Industry: Precious Metals BEAR, STEARNS & CO. INC. EQUITY RESEARCH Gold Shares - Extreme Valuation and Sentiment Should Allow Upside from Recent Events An Old Fashioned Reaction . . . During Thursday's trading session, gold shares reacted as if it were a decade ago. In the recent broad market decline, where few sectors had provided protection and with leadership narrow (energy, utilities), the consternation surrounding market and international events created an atmosphere of flight. . . to oil and gold. While investors have rotated toward energy within a decidedly positive momentum group, North American gold shares have reached prices not seen since August 1998, when the markets at that time neared an accelerating commodity deflationary spiral. The expectation of fed liquidity halted the decline in the metal and marked a bottom for the group. While currency trends have been distinctly negative for precious metals during the past weeks (Australian dollar, South African rand achieving multi-year lows relative to the U.S. dollar while the Euro accepted intervention) dollar gold prices have held the $270 level. Overall commodity prices have trended higher led by energy. The European Central Bank gold agreement anniversary passed on September 26th, leading to fears of a fresh round of monetization. Given the gold sector's 30% decline during the third quarter, exceedingly bearish sentiment and tone within the industry, fund-loss selling and recent expectations of net fund flows out of equities, a group recovery is warranted, in our view. Since mid-August, we have been expecting a trade in the group during the fourth quarter, a seasonally strong period for the shares. Some sustainability would be welcomed, even if for a few days, to better support a significant move higher with the group. We believe that the gold stocks will find support, albeit more from sentiment extremes than a fundamental shift in its market, which still encompasses too much liquidity from a debauched commodity. We suggest metal share investors focus on mid-cap name Newmont Mining (NEM 16 1/2, Buy) and small-cap name Homestake Mining (HM 4 3/4, Buy). Each producer embodies low costs and un- hedged exposure to pricing dynamics. Rocky Mountain Reality . . .Our Impressions from Denver During last week, we attended the annual Denver Gold Show. This annual conference brings together the world's precious metals mining companies for three days of presentations followed by two days of Western U.S. mine tours. We gleaned our insights from the conference in an atmosphere of discouragement, denial and in some cases, depression. Investor attendance was extremely light, with possibly no more than a dozen, or so money management institutions represented. Pull together or swim apart. Advertising was a major theme presented by the producers and other industry observers. In our view, the obvious lack of pricing control afforded the producers in the gold market (which we contend resembles a stock rather than a flow market) has management searching for answers. The idea of more promotional spending we do not believe will be effective. The promotional money spent by the World Gold Council - funded by a portion of the global producer community, has appeared not to efficiently satisfy market constituents. We believe that a three-pronged approach must be enabled for any chance of a coordinated marketing effort to succeed. Producers along with bullion banks and central banks should coordinate efforts. We believe the combination of three of the major forces in the increasingly transparent gold market would be powerful enough to market a credible story and forcefully provide reasons for investors to circle back to gold; even as the latter two constituents are pulling back. The industry producers have been in survival mode during the past two years. We never heard as much discussion about proper allocation of capital and hoping to generate a return greater than its cost than we did during the presentations. Will consolidation enable this? We continue to argue that consolidation for the sake of size and scope will prove fruitless and potentially set back any positive momentum within the sector. Operating costs, discretionary spending on capital and exploration, general overhead expenses have been reduced, in some cases quite successfully. We do not see significant expense savings left that consolidation could meaningfully accelerate. While merger of equals could provide some interest, we believe cultures, viewpoints and shareholder concerns could derail that avenue. As for the precious metal companies in our universe, Barrick Gold (ABX 14 3/4, Attractive) presented very strong and compelling exploration and development news surrounding its Tanzanian assets. The announced increase in proven and probable reserves rewarded the shares with a 10% decline in the ensuing three trading sessions. Our sense is that Barrick could be attempting to portray an investment story that slowly divorces itself from the gold mining sector. Newmont and its partner Buenaventura (BVN 14, Not Rated) continued to provide upside to investor expectations at Yanacocha. The Batu Hitau construction loan is expected to shift to non-recourse by year-end as completion tests become validated. Homestake introduced the company without its namesake mine. Cash costs of $170 per ounce have been aided by less than $10 per ounce through currency translation. Stillwater Mining (SWC 26.25, Attractive) showed more confidence in its plan to develop Nye than we expected. The confirmation of the operating plan by Bechtel provides added support to the story, which admittedly has disappointed the market to date. We believe the shares merit attention in the mid-20s. Companies Mentioned: Barrick Gold* Buenaventura Newmont Mining* Homestake Mining Stillwater Mining DAK