some interesting thoughts in this article regarding valuations for gold company's, seems like it applys to a large degree to Century Mining as well??
theglobeandmail.com
MARKET MOVES: PRECIOUS METALS
Gold bears warn that all that glitters . . .
JOHN PARTRIDGE
Ah, gold. Yawn. Another day, another high.
Midas's unstoppable (for now) metal punctured $700 (U.S.) an ounce yesterday, the first time it has done so since October, 1980. That's 25 years and seven months for those of you who like to keep score a little more closely.
Not surprisingly, Canada's gold miners smelted some more gains for shareholders from the up-draught, which stemmed not just from another twist in the Iranian nuclear saga, but also from reports that Chinese economists have urged Beijing to quadruple its gold reserves to 2,500 tons.
The Standard & Poor's/Toronto Stock Exchange capped gold index, which counts 17 producers as its members, jumped 3.6 per cent to 359.35 points. This means it is up about 35 per cent from the beginning of January, and has more than doubled from this time last year.
This, in turn, helped push the upwardly mobile S&P/TSX composite index to 12,328.21, up 34.01 points from Monday.
Among the biggest gainers among the gold producers were Yamana Gold Inc., whose shares closed up 9.9 per cent at $13.35 (Canadian), Cambior Inc., up 7.7 per cent to $4.20, Golden Star Resources Ltd., up 5.5 per cent to $4.05, and Agnico-Eagle Mines Ltd., which rose 4.7 per cent to $44.35.
But how fully do gold stocks reflect the metal's high price?
"Not as fully as one would expect," said Geoff Stanley, a precious metals analyst with BMO Nesbitt Burns Inc. in New York.
In fact, by Mr. Stanley's calculations, the overall valuation level for the sector has fallen about 30 per cent, relative to the spot price of gold, over the past few months.
"Over the last couple of years, on our valuation metrics, the sector has been trading at almost a 30-per-cent premium to pure [net asset value] based on the spot gold price of the day," he said. "Now, if you put in the gold price of yesterday or the day before, we find it is trading at pretty close to valuation."
The key reasons, he said, are skepticism among equity investors about the sustainability of the gold price, and concerns that "as higher gold prices allow [the miners] to treat lower-quality ore . . . unit costs per ounce will on average increase, eroding margins somewhat."
Not that Mr. Stanley is singling out gold for cruel and unusual punishment.
"Often you'll find that commodity stocks will lag the commodity price until such time as the market finally believes it's sustainable for some period of time -- and then the stocks will catch up," he said.
If you look at sell-side analysts' "buy" and "sell" recommendations as a reasonable proxy for value, then quite a few of the companies in the S&P/TSX capped gold index may be undervalued.
According to data compiled by Bloomberg, there are currently a total of 162 "buy" recommendations for the 17 miners, 92 "holds" and just 19 "sells."
There is, of course, huge variety among the individual companies. Agnico-Eagle, for instance, boasts 12 "buys," 10 "holds" and one "sell," where giant Barrick Gold Corp. is at 19, 5 and 3, respectively. By contrast the sentiment is more negative on Goldcorp Inc., with "holds" outnumbering "buys" by 12 to 9.
There also are four gold companies in yesterday's edition of Bloomberg's list of companies with the highest average analyst ratings: Yamana, Eldorado Gold Corp., Iamgold Corp. and Kinross Gold Corp. There are none in the companion list of lowest-rated stocks.
Still, there are gold skeptics out there, including Simon Hayley, senior international economist with Capital Economics Ltd. in London.
Mr. Hayley joined a small but growing band of commodities bears last week when he issued a report saying that current high prices throughout the sector are "not sustainable." He predicted that crude oil, for example, will fall from its current perch of $70 (U.S.) a barrel to $50 by the end of this year and to $45 by the end of 2007. He forecast metals prices will fall 40 per cent by the end of next year, although this will "merely" bring them back to the levels of early 2005.
Reached in London yesterday, he said he figures gold is in for a similar drop, unless "something really ugly happens in the [Persian] Gulf."
jpartridge@globeandmail.com
tanoose...................so we must sit and wait for the market to catch up?? |
