gold stocks back in investment spotlight

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    This story is from - (btw this site is a must if you are into resource stocks like me :) It is one of the sites I look at every day.

    Gold stocks back in investment spotlight
    Stephen Bell
    17 December 2002
    GOLD'S push through the $US330 per ounce barrier has set the bulls running - yet again.

    Stockbroking analysts are dusting off those faded "buy" recommendations and casting an eye over the rapidly diminishing field of Australian-owned gold producers. Euroz Securities says that bullion is now at a three year high and "as opposed to previous rallies this one looks sustainable".

    It rates potential US military action in the Middle East and worsening relations between the US and North Korea as the most important recent catalysts for the price jump.

    In the looming bull market, juniors with resources in the ground and active exploration programs "will get noticed", Euroz believes.

    "The market will re-rate any exploration success very quickly and assume it is a gimme that exploration success will automatically mean a mine."

    Euroz’s recommendations are:

    * Large Caps: Newcrest Mining and Lihir Gold
    * Mid Caps: Equigold, Croesus Mining, GRD and Emperor Mines
    * Small Caps: Abelle, Dioro and Sedimentary Holdings
    * Explorers: Spinifex Gold, Hamill Resources and Gallery Gold.

    Given the lack of choice at the top, the large caps virtually pick themselves, so no surprises there.

    In the mid caps, Euroz likes Emperor, the high-cost Fijian producer that recently gained DRD as a substantial shareholder in place of Robert Friedland's Ivanhoe Mines.

    "(It) has been to plus-$3.00 in previous gold bull markets," the broker said.

    Another pick, Croesus, was trading "well above valuation", but Euroz reckons it has good leverage to a rising gold price (relatively unhedged) and "has been the one the funds have played in the mid caps".

    The broker’s "explorer picks" are notable for the inclusion of two African plays - Spinifex and Gallery.

    "Offshore explorers will be back in vouge (during a bull market)," Euroz said. "Large multiple million ounce resources that juniors control will become attractive corporate targets."

    Macquarie Financial Services, meanwhile, has examined the impact of the firmer gold price on underlying stock values.

    "The recent gains in the gold price, which has seen the price move to in excess of US$330/oz, appear to have created a new trading range of US$320-340/oz, with the risk being to the upside," the broker said.

    "Mid-tier and junior gold equities rallied with the gold price rise, however they generally continue to trade at a discount to NPV (net present value) valuations," Macquarie added.

    Plugging in a US$330/oz "gold price base" into Macquarie’s model has a "varying impact on valuations dependant on companies' mine lives", it said.

    For example:

    * The valuation for Croesus Mining (short-term 'out perform'/long-term 'market-perform' recommendation) increases to $0.83/share
    * Equigold (Out/Out) to $1.60/share,
    * Gindalbie Gold NL (Out/Market) to $0.37share,
    * Gympie Gold (Market/Out) to $1.11/share,
    * Kingsgate Consolidated (Market/Out) to $3.05/share
    * Sipa Resources International (Out/Out) to $0.40/share, and
    * Troy Resources (Market/Out) to $1.71/share.

    IMO with the lack of large cap options, in the coming gold bull market, the junior end of the sector is the place to be.
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