Gold at US$1,500 an ounce represents good buying if analyst Les Szancer’s prediction of $US2,000 an ounce is met within 18 months. Szancer went out on a limb 14 months ago and predicted gold would rise to $US1,500 an ounce before the end of 2010. It didn’t, but he wasn’t far off, it finished 2010 at $US$1,418 an ounce. At the time of his prediction – published on this website in February 2010 – gold was trading marginally above US$1,100 an ounce.
Szancer, of Alpha Broking, maintains that what drove gold up in 2010 will push the precious metal higher this year and beyond. Essentially, the positive drivers are gold is a safe haven, it’s a hedge against inflation, it’s an alternative currency, the US dollar is weak and demand, particularly from India and China, is strong. “We consume more gold each year than is produced,” Szancer says.
He says the gold price, like almost anything that’s traded, will go up and down, but $US2,000 an ounce within 18 months is “certainly achievable, before it really goes through the roof”.
“Whenever gold has hit new levels, commentators are prone to say, ‘that’s it’ – it cannot go any higher, but it does,” he says. “What other commodity can take its place? Perhaps silver, but you have to own so much more of it compared to bullion, and it doesn’t have the same allure as gold.”
In the absence of owning the physical metal, Szancer has put together a list of gold companies he believes will benefit from the bullion ride. While Szancer is bullish about the gold outlook, his list involves varying degrees of risk, which should be given careful consideration before investing.
Azumah Resources (AZM)
Good exploration results are usually a catalyst for driving up the share price and so it’s the case with Azumah Resources. Szancer recommended Azumah in February 2010 when the shares were trading at 23.5 cents. The shares closed at 59 cents on July 8, 2011. Azumah is focusing on exploration and stgeloping its 100 per cent owned Wa Gold project in West Africa. Its project contains a Joint Ore Reserves Committee (JORC) compliant indicated and inferred resource of 1.2 million ounces. The company recently announced good drilling results, which Szancer says could lead to further resource upgrade in the months ahead. Szancer says the company’s project is in a renowned gold deposit region and it offers considerable exploration upside with numerous defined targets. Szancer says management is experienced in gold exploration and the company is on track to become a producer by 2013. The company has about $33 million in working capital. “I see no reason to jump off this bandwagon,” he says.
Argonaut Securities has a speculative buy on Azumah with a valuation of 82 cents on the stock, a 30% premium to the price as at 8th July 2011. You can read Argonaut’s research report by clicking here. And Paradigm Capital has a 12-month target of 90 cents, a 50% premium to the price on Friday. You can download the report by clicking here.
Adamus Resources (ADU)
Adamus Resources owns 90 per cent of the Nzema Gold Project in West Africa and claims to be Ghana’s newest producer after pouring its first gold bar in January, 2011 and declaring commercial production in May. Szancer says Ghana is among the world’s best addresses for gold exploration and project stgelopment. The company’s project has good access to rail and port infrastructure and the Nzema Gold project covers more than 650,000 square kilometers of land in a region hosting more than 100 million ounces of gold. According to Adamus Resources, gold exports account for 40 per cent of Ghana’s GDP. The political environment is stable and supports business. Based on an existing resource of 1.75 million ounces of gold, feasibility studies on the Nzema project support 100,000 ounces a year over a 10-year mine life. Szancer says the share price retreat from 89 cents in January presents a buying opportunity for a company that’s meeting the challenges and offers a bright outlook from a premier gold region.
Patersons also has a buy on the gold miner, with a price target of $1.11 – a 79% premium to Friday’s closing price of 62 cents. Meanwhile Canadian outfit Clarus Securities has a price target more than double the current price.
Gryphon Minerals (GRY)
Up 13.1% last week, Gryphon is now trading near all-time highs. And there’s a lot to like about Gryphon Minerals, according to Szancer. The West African gold explorer recently announced a 520,000 ounce increase of its JORC (Joint Ore Reserves Committee) inferred resource estimate at the company’s flagship Banfora Gold Project in Burkina Faso for a total of 2 million ounces. The company is planning about 600,000 metres of drilling in the next 12 months as part of an aggressive $30 million exploration program. Szancer says the Banfora Gold Project benefits from a shallow depth – most of the resource is within 100 metres of the surface. That keeps extraction costs down. “Investors like positive news flow, particularly from explorers,” he says. “Gryphon is a company that keeps hitting targets.”
However, Szancer says potential investors must pay close attention, as any good news tends to be rapidly factored into the share price. “In actual fact, buying now is buying on potentially more good news,” he says. “However I see the share price rising to around $3 in the next 18 months.”
There are plenty of other analysts bullish on GRY’s prospects and you can download research reports from Deutsche Bank, RBC, Argonaut and Eagle Research here. Eagle Research has a $2.20 target price, RBC has a $2.30 target price, and Deustche Bank has a $1.90 target price.
Newcrest Mining (NCM)
Australia’s biggest gold producer, Newcrest Mining (NCM) has been lucky enough to be smack bang in the middle of a gold boom that has continued unabated for the last decade. And ride the boom it has, with the NCM share price soaring from $5.60 at the beginning of 2003 to an all-time high of $42.66 in mid-April – an almost eight-fold increase in just eight years.
However NCM downgraded full year production after a 16 per cent fall in the first quarter of calendar 2011. It now expects full year production to be 2.82 million ounces, plus or minus 35,000 ounces. Heavy rainfall on Australia’s east coast impacted production, while operations at Bonikro in Cote d’Ivoire were suspended during most of the March quarter due to civil unrest. Szancer views the production fall as a blimp against the long-term outlook. Although gold production was lower, the company still produced more than 604,000 ounces for the quarter amid copper production increasing 13 per cent to 20,098 tonnes. Szancer says Newcrest offers long life operating mines and strong exploration prospects. “Newcrest, as an unhedged gold producer, will benefit as I am bullish about gold,” he says. “I view the share price retreat on news of lower production as a buying opportunity in a top gold producer.”
Aphrodite Gold (AQQ)
Aphrodite Gold has been disappointing, with its share price amost halving since its initial public offering of 20 cents in July 2010. Szancer believes the lack of news flow about company activities may be behind the share price fall. The company’s namesake project is 65 kilometres north of Kalgoorlie in Western Australia and has an indicated and inferred JORC mineral resource containing 1.033 million ounces. This year the company plans to undertake an expanded exploration and stgelopment strategy that includes drilling programs to upgrade and define further resources, metallurgical test work on core samples and a scoping study focusing on open pit mining. The company aims to start mining operations at its Aphrodite Gold Project in late 2012. Szancer believes the company is cheap considering its JORC resource. “I’m expecting this company to surprise on the upside,” he said.
Just last week the company announced results from its ongoing drill program at its Aphrodite Gold Project. “The latest drilling results continue to confirm the presence of multiple zones of strong gold mineralisation over significant strike lengths within the Alpha structure with high gold grades at various positions, and at potential open pit depths, a feature of this lode,” it said in a statement.
Resource Capital Research (RCR) has a 6-month price target of 18-23 cents, you can read RCR’s research report by clicking here. Intersuisse had it as a speculative buy in March, you can read Intersuisse’s research report by clicking here.
Hill End Gold (HEG)
Hill End Gold is trading at 4.5 cent levels, in what Szancer says is one for the punters. Although the company has tenements in New South Wales, Szancer believes Laos may be the bearer of good news. Its Lak Sao Project application area is on the Troungson Belt, which also hosts the giant US$15 billion Sepon copper/gold project once operated by the former ASX-listed Oxiana. Szancer says the region is full of promise and Hill End Gold management has a good track record in building and operating projects in Australia and overseas. “I think it’s worth a small punt at these prices,” he says. HEG recently raised $2.4 million to fund assessment of open pit potential at its Hargraves and Red Hill projects. You can read some older analyst reports here to give you some background information on the company.
|COMPANY||CODE||SHARE PRICE CLOSE|
|Azumah Resources||(AZM)||60 cents|
|Adamus Resources||(ADU)||62 cents|
|Aphrodite Gold||(AQQ)||11 cents|
|Hill End Gold||(HEG)||4.4 cents|
Prices current to market close, 8 July 2011. Charts: Share prices over the year to 8/7/2011 versus ASX200 (XJO)
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