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Gold/Mining/Energy : Precious and Base Metal Investing -- Ignore unavailable to you. Want to Upgrade?

To: marynell who wrote (889)	12/14/2001 2:39:29 AM
From: Gord Bolton	Respond to of 39344

Story Filed: Thursday, December 13, 2001 1:22 PM EST Dec 12, 2001 (Miningweb/All Africa Global Media via COMTEX) -- South African analysts are advising clients to load their Christmas stockings with more gold shares this season. The Johannesburg gold index is expected to outperform the market once again this year owing to the rand which is pushing local currency margins through the roof. Three of Johannesburg's rated gold analysts say the effect of the weaker rand - which has local gold prices at all-time highs - will continue to have a dramatic impact on earnings and valuations of South African gold shares. A report by JP Morgan's James Wellsted says investors should be overweight gold equities at 7 percent compared to its weighting against the South African All Share Index of 5 percent. "The index sits at six-year highs of 1,590 points and the question is: has it run its course and is it time to start looking elsewhere for returns? Our response to that question would be a resounding no!," Wellsted says. The view is shared by Joachim Berlenbach, gold analyst at Schroeder Salamon Smith Barney (SSSB). He says gold shares should carry a weighting of between 6 percent and 7 percent in investment portfolios for next year. He adds, however that South African platinum shares, despite reaching near-record highs lately, offer greater value. Another gold analyst, who declined to be named, says gold shares are fairly priced and should carry a market weighting. "But I wouldn't want to be caught without them, especially if you're factoring in dollar weakness this year," he says. He points to the inverse correlation between the gold price and dollar strength. Analysts, however, are not forecasting anything resembling a bull-run in the dollar-gold price. In fact, SSSB is forecasting a static dollar gold price trading range of between $280/oz and $285/oz. The year's picks Unhedged stocks Gold Fields [JSE:GFI] and Harmony [JSE:HAR] top the list of best picks. AngloGold [JSE:ANG], as South Africa's premier stock, should never be discounted. Even Durban Roodepoort Deep [NAS:DROOY], the marginal producer and top-performer among the gold stocks for the year, is rated a buy by JP Morgan. Avgold [JSE:AVG] and Western Areas [JSE:WAR], both heavily hedged and developing large gold projects, should be avoided, analysts say. Interestingly, the threat of inflation on costs seems to hold little water. "Even with our more conservative 7 percent per annum input cost increases, accounting for above-inflation wage increases, our forecasts show that unit revenues should continue to outstrip costs, ensuring continued profitability for the industry," says Wellsted. For the time being, revenue appears to be rising at a greater rate than costs, breaking a close correlation which has lasted a decade or more. Even the producers' propensity for treating low grade material in the higher price environment should be abrogated, as higher volume production at the margin boosts the bottom line. Wellsted says more than 88 percent of the South African gold industry was profitable in the third quarter notwithstanding its notoriously high capital expenditure obligations. The industry had an average margin after capex of 11 percent in the same period. Only Western Areas and Harmony's newest acquisition Joel were loss-makers. "This compares with Q3 2000, when 18 percent of the industry was unprofitable after capex and the average after-capex-margin was five percent," says Wellsted. by Stewart Bailey Copyright Miningweb. Distributed by All Africa Global Media(AllAfrica.com) KEYWORD: South Africa Copyright © 2001, Africa News Service, all rights reserved. You may now print or save this document. library.northernlight.com