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Gold/Mining/Energy : Blue Chip Gold Stocks HM, NEM, ASA, ABX, PDG -- Ignore unavailable to you. Want to Upgrade?

To: Wade who wrote (1260)	1/21/2004 10:31:44 AM
From: Yogizuna	Respond to of 48092

I am still playing it conservatively on the gold stocks for now, bought some RGLD, sold some calls.... Still have significant cash on the sidelines waiting to be put to work in the sector when the picture becomes clearer.

To: Wade who wrote (1260)	1/21/2004 7:45:29 PM
From: Wade	Read Replies (1) \| Respond to of 48092

Is PE at 23 too high? Wade mips1.net By: Daniel Thole Posted: 2004/01/08 Thu 15:52 ZE2 \| © Mineweb 1997-2004 JOHANNESBURG – South African gold shares are approaching their most expensive levels ever relative to the Johannesburg market: but they may be heading for a spectacular fall if history is anything to go by. Local gold shares are trading on a historic price to earnings (P:E) ratio of 23 – low when compared to their North American and Australian counterparts, but way ahead of the rest of the JSE. Although the dollar gold price is at 14-year highs, the stronger rand has cancelled out much of the upside for gold producers, who are expected to report weak earnings for the December quarter come the end of this month. Wayne McCurrie, the managing director of asset manager Momentum said gold shares would be trading at a 35 P:E by the end of the year, based on the previous 12 months’ earnings, even if the rand gold price remained stable. That would see gold stocks reach their most expensive level relative to the overall market ever – the JSE trades at an average P:E of just 13. McCurrie said the last time gold shares had been almost three times more than expensive relative to the overall market, the gold index had underperformed the overall market by almost 60 percent in the following eighteen months. The last time that happened was in 1996, and gold shares lagged the market by 30 percent the year after they ran ahead of themselves in 1988. “Gold shares have underperformed every time they have reached these levels,” McCurrie said. McCurrie said the rand would have to weaken to R7.50 to the dollar, and gold would to remain stable for the current valuation to be justified. McCurrie said gold shares were pricing in a rand gold price of at least R3200/oz, far stronger than the current rand gold price of R2700/oz. “South African gold shares are not really a gold play at the moment – they are a rand play,” McCurrie said. Tradek gold analyst Nick Goodwin said the rand’s strength had cancelled out the gains gold had made in the last year. “Unfortunately the rand has strengthened substantially, so that the rand gold price has actually come down over that period. And I think this past quarter, which is December, we will probably see similar results but these results are about a quarter of what they were a year prior to that.” He said that while his model showed that local shares were only slightly expensive, they could be as much as 40% overvalued depending what method was used. “… you can also look at shares from a fundamental point of view where you can work out DCF (discounted cash flow) and things like that on mines. And, on that basis, the shares are about 40% overpriced,” Goodwin said. He said the JSE’s gold index needed to move up to the 2 800 or 3 000 point area, and then his model would signal that shares are overpriced. “… the share index started at 700 a few years ago, and went to 3 600. That was about a year ago, and then the next drop was to 1 800 – that was in May last year. And now it has recovered. It went close to 2 800,” he said. Goodwin said that although the index had come off recently, the movement from 1 700 to 2 800 was a recovery in a bear phase. “I still think the shares are going lower. Now this is at odds with virtually everybody else in the world, because they think the shares are going higher,” Goodwin said. He said that gold could touch $500/oz later this year of early in 2005. “But I see it coming off first. And that is when I see the shares getting hurt and there will be a very good buying opportunity.”