Macquarie Research metals analysts said recently that We remain bullish on the gold sector-but due to rising operating and capital costs, we remain selective. We prefer large liquid companies exhibiting low risk, high growth as well as experience and proven management teams.
Our top picks are Goldcorp, Agnico-Eagle and Yamana; we recommend investors buy these stocks at current levels, analysts George Albino, John Graham, Matthew Sheppard, Pierre Vaillancourt, and Andrew Thompson advised. We also note, at recent trading levels, we recommend accounts accumulate shares of IAMGold.
During the first quarter, Macquarie noted that senior and intermediate gold producers reported production ranging from 1%-22% lower than our forecasts-companies with by-product credits benefitted from positive provisional pricing adjustments, while gold-only producers broadly reported financial results below expectation.
1Q08 marketed a quarter of record high gold prices (average prices of $924/oz, with a high of $1,033/oz), but was marred by ongoing cost pressures resulting from forex changes and soaring input prices, Nevertheless, a number of companies with exposure to copper byproduct credits outperformed our cost expectations in 1Q08-the most significant being (in our view) Goldcorp, Yamana and Agnico-Eagle. The analysts advised that we continue to believe that copper exposure is a plus-but we continue to closely monitor copper price fluctuations in order to clearly define the directionality of provisional pricing adjustments.
Goldcorp maintained the lowest cast costs in the senior group at $240 per ounce of gold, compared to the overall senior gold producers' average of $385/oz. However, they maintained that operating performances were not all as stellar.
Despite a mixed 1Q08 result, due to operating shortfalls at Goldstrike and Bulyanhulu, Barrick maintained a full year guidance of 7.6-8.1m oz at $390-$415/oz, the analysts noted. We remain somewhat cautious over longer term valuations at Barrick...
‘At the senior producer level, we have decreased our Barrick target by $3.90/sh to $53.10/sh (and maintained our Neutral rating-the lower target is the result of uncertainty over development pipeline and potential capex (specifically at Pascua Lama, Pueblo Viejo, Donlin Creek and Cerro Casale.
We have maintained our Outperform rating, and have increased our target for Goldcorp to $58.50/sh. The increase is directly attributed to upside at Peñasquito, the analysts advised.
Macquarie added 90-cents per share bringing its Kinross target to $24.40/sh. resulting from confidence of delivery at Kupol-but we note that we remain cautious on capex risk at Cerro Casale and also have concerns over potential Russian political involvement at Kupol.
The analysts lowered the Newmont target from $64.25/sh to a new target of $50/sh, but maintained its Neutral rating, noting good start-ups at the Yanacocha Mill and Boddington mine could help restore value, but we will await further detail prior to building in full value.
Macquarie maintained its Agnico-Eagle and Yamana valuations. The analysts said they were impressed with Agnico-Eagle's development at Goldex and will continue to monitor capex estimates for Meadowbank as well as development updates from Kittila, Lapa and Pinos Altos.
However, Macquarie analysts warned that we continue to seek risk at Centerra. Our new C$10.75/sh target (and maintained Neutral rating) directly reflect ongoing uncertainty over the status and structure of the new operating agreement with Kyrgyz Government.