Listed gold companies will continue to appeal to investors as European sovereign debt issues mixed with a weaker US dollar continue to push the bullion price higher, according to analysts. They say gold will continue to shine until sound evidence of a global economic recovery reduces uncertainty and sparks sustainable growth.
Amid uncertainty and possibly more quantitative easing in the US is a decline in gold production since the precious metal price began its bull run from a low of US$255 an ounce in February 2001. Global gold production has fallen from about 2600 tonnes in 2001 to 2350 tonnes in 2009. Today, two analysts examine six stocks they believe offer good value in line with a rising gold price approaching a record US$1300 an ounce and beyond.
Newcrest Mining’s merge with Lihir Gold has created the world’s fourth biggest gold mining company by market value, with 10 operating mines in four countries, according to Mark Goulopoulos, of Patersons Securities. He says Newcrest has gold reserves of 77 million ounces and expects to produce 2.74 million ounces in 2010. “Perhaps even more exciting than this impressive scale is forecast production growth of 3.75 million ounces per annum by 2014,” Goulopoulos says. “When looking at the gold sector in Australia – or internationally for that matter – it’s impossible to go past Newcrest Mining. It’s one of the few genuine blue chips of the gold sector.”
Goulopoulos describes Perseus Mining as one of the big success stories among Australian gold companies doing business in West Africa. The share price has risen in response to consistent growth in reserves during the past few years. “With an aggressive exploration program planned for the next 12 months, combined with the stgelopment of its first gold mine, further upside potential exists,” he says. “In addition to these attractive fundamentals, consideration should also be given to the company’s corporate appeal as it controls over 7 million ounces of gold, with an exceptionally strong growth profile ahead.”
With a gold mine in Ghana comprising 600,000 ounces of reserves, Goulopoulos says Noble Mineral Resources is a newcomer to the ASX still flying under radar of widespread investor attention. Goulopoulos declares an interest, saying Patersons Securities was involved in a $40.2 million capital raising on behalf of Noble, but his preference here is based on merit. “I believe this stock offers good value and that’s why I have put it forward for investor consideration,” he says. Goulopoulos says Noble has resources of 2 million ounces, appropriate infrastructure and a mining fleet. Mining is scheduled to start within nine months and Noble offers considerable “near mine exploration potential”. Goulopoulos says: “Noble also appears very undervalued in comparison to similar peers in West Africa, which is likely to change as investors become more familiar with the company.”
Goulopoulos says the gold price has also benefited from central banks becoming gold buyers rather than sellers amid a loss of confidence in the US dollar and the Euro. Gold appeals against potential sovereign debt defaults, which would cause massive dislocation in financial and currency markets. “It’s (gold) also seen as a hedge against a possible spike in inflation, which may be caused by the enormous money printing that central banks have undertaken in order to stimulate their economies,” he says. Goulopoulos says the gold price will be pressured down if financial markets shake off volatility and the risk of sovereign defaults subsides.
Momentum is a powerful force shown by gold’s uptrend for almost 10 years, according to Alto Capital analyst Carey Smith. He says news of big players buying gold can be a contagion among small investors eager to join the action. “Some of the smartest people in the world have been recently buying large amounts of gold through their hedge funds, including, George Soros, of Soros Fund Management, John Paulson, of Paulson & Co, and Eric Mindich, of Eton Park Capital Management,” he says.
On the ASX, Smith likes Resolute Mining as it’s now the second biggest listed gold producer, with forecasts of between 360,000 ounces and 400,000 ounces for 2010/11. It operates gold mines in Australia and Africa. “The group has reserves of 2.5 million ounces and resources of 9.4 million ounces, which should provide ample ore supply for the next 10 years,” he says.
Gold production has ramped up at Gold One International’s Modder East gold mine in South Africa since the project was commissioned earlier this year. Production is forecast to increase to more than 100,000 ounces a year from its current annual rate of 70,000 ounces. “The company has a solid pipeline of new projects to bring on stream, with a scoping study currently underway at its 3.2 million ounce Ventersburg Gold Project in South Africa,” Smith says. “With reserves of 1.4 million ounces and resources in excess of 13 million ounces, this company has one of the largest gold resources on the ASX.”
Smith says the rising gold price is encouraging greater exploration, and investors should by eyeing more potential merger and acquisition activity going forward, which generally lifts the price of target companies. He says Newcrest recently completed the acquisition of Lihir Gold, North Queensland Metals is recommending a takeover bid from Conquest Mining, Canada’s Goldcorp is in the process of acquiring Andean Resources and Anatolia Minerals Development of Canada and Avoca Resources have agreed to merge.
Smith says Mineral Deposits Limited’s Sabodala gold mine in Senegal produced more than 170,000 ounces at a cash cost of US$495 an ounce during the 2010 financial year, its first full year as a producer. Mineral Deposits has significant exploration potential to complement Sabodala’s 10-year mine life. “The group has reserves of 1.6 million ounces and resources of 3.5 million ounces,” Smith says. “So the company is planning to expand its gold production plant from an existing 2.4 million tonnes of ore per annum to more than 3.5 million tonnes, which will result in a 30 per cent plus increase in annual gold production.”
|COMPANY||ASX CODE||SHARE PRICE AT 22/9/10|
|Noble Mineral Resources||NMG||35.5 cents|
|Gold One International||GDO||29 cents|
|Mineral Deposits Limited||MDL||$1.05|
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