PlacerDome gold reco'd by JPMorgan H&Q (JPM not in control)
funny to read a positive reco from such a house, but here
a whopping rise from 12 to 15 expected this year, wow
PDG is cheaper than the major golds
she cites discount to AmerBarrick, which is poor choice
also cites discount to Newmont, which is the emerging king
my guess is Newmont (NEM) is somewhat overpriced under the weight of recent acquisitions
Barrick is no longer a gold mining enterprise
they have mining operations, but their primary function is as a precious metals hedge firm
they are the largest and most irresponsible gold hedger in the world
when gold explodes, Barrick will watch
why?
since they will be buying back futures contracts stupidly sold forward
just learned a pernicious fact on forward hedging
mining firms had two choices back in 1997-99
1. sell massively on forward basis to finance continued losing operations
2. shut down 75% of mining operations
those firms which chose #1 will not participate in the gold rally
interesting part in reference to reserves offsetting hedge book
which is essential for mining firm NOT to buyback hedges later
my guess is H&Q has large position in PlacerDome
but PDG has failed to keep up since they over-hedged forward sales
PlacerDome probably sold those contracts to JPMorgan
funny part is JPMorgan has gigantic exposure to a rise in gold
I personally believe JPM and Citibank are expecting a massive default on contracts, AND will be allowed to walk away from giant exposure !!!
but the EVENT will create a bonfire under precious metals
/ jim
Analyst takes a shine to Placer Dome
By Susan Lerner, CBS.MarketWatch.com
Last Update: 6:44 PM ET March 25, 2002
NEW YORK (CBS.MW) -- Gold stocks have been all the rage so far this year, and the glitter hasn't faded -- at least not for Placer Dome, according to one analyst.
Encouraged by the company's resource potential at its Donlin Creek, Cerro Casale, Getchell and Pueblo Viejo projects, J.P. Morgan H&Q analyst John Bridges on Monday upgraded shares of the Vancouver, B.C.-based gold producer (PDG: news, chart, profile) to "buy" from "long-term buy." He set a $15 12-month price target.
Placer Dome shares brightened on the upgrade, rising 31 cents, or 2.6 percent, to close at $12.27.
"Growth in resources at Donlin Creek are emphasizing the company's large resource potential," Bridges wrote in a research note. "In an industry with limited new mine development projects, Placer potentially has four."
"Resources" has a broad definition in the mining world, ranging from properties that have had very limited geological testing all the way up to those that have had extensive studies and drilling but are still awaiting results. "Reserves" are considered more certain following extensive testing and drilling. In the U.S., for instance, resources can't be categorized as reserves until a feasibility study is completed.
Yet, while gold producers with large resources usually rise along with a rising gold price (because with a higher gold price the development and mining of the resource becomes more financially viable), Placer has yet to move up against its peers.
Bridges noted that Placer has underperformed its North American counterparts year-to-date, including a 30 percent fall versus Newmont Mining (NEM: news, chart, profile).
Even with the recent spike in gold prices, the precious metal is still trading at levels that make it very difficult for producers to generate returns from mining. So instead of looking at returns, Bridges said analysts are focusing on the companies' asset bases, looking ahead to possible future production.
On a capitalization-to-reserve-ounce basis, Placer is trading at 20 to 25 percent below Newmont and Barrick Gold (ABX: news, chart, profile), according to Bridges. However, if reported resources are included the discount increases to 35 percent. Still, he notes, Placer is including only resources from the Getchell property in its calculations. Adding Placer's share of the other three projects into the resources calculation would take the company to a 50 percent discount to Newmont and Barrick, a margin he considers "too wide."
Bridges acknowledged that these numbers are only at the resource level of confidence with a very limited portion drilled to the measured category. But he says the scale of the resource is "impressive" and its sensitivity to changes in cutoff grade or gold price is "substantial."
"Given the extreme shortage of large gold projects that the industry faces, even resources ounces on this scale are, in our opinion, very meaningful," he said.
The resource levels are also important because they counterbalance the company's hedge book, which generally makes a gold producer a little less attractive as gold price rise.
Looking at the company's financial performance, Bridges called it "very acceptable" thanks to rigid cost controls. He is forecasting 2002 earnings of 37 cents a share for 2002.
Susan Lerner is a reporter for CBS.MarketWatch.com. |
