LONDON (ShareCast) - Canaccord Genuity has highlighted key stocks to buy in the gold mining sector as it lifted its forecasts for the price of the precious metal over the medium term.
The broker explained that UK-listed gold producers on average have mildly outperformed the gold price since the start of 2014. However, valuations for large producers still remain below those seen in 2010 when the gold price was around the same level.
“We believe the recent strength in the gold price is the result of a robust physical demand and a pick-up in investment demand as indicated by the first significant rise in ETF gold holdings in 15 months,” said analysts Dmitry Kalachev and Peter Mallin-Jones.
“Given the worries of further potential corporate bond defaults in China and global geopolitical tensions between Russia and the West over Ukraine we see potential for the gold price to rally further in the near term.”
They have lifted their average gold price estimate for 2014-2018 by 6% to $1,354 per ounce and their long-term projection by 5% to $1,455 per ounce.
“This drives earnings per share [forecast] upgrades and an average 25% increase in target prices across our coverage”.
Pan African Resources, rated ‘buy’, is named as the analysts’ top pick on the back of robust free cash flow (FCF) and a high dividend yield.
They have upgraded its ratings for Polymetal and Petropavlovsk to ‘buy’, saying that the current geopolitical risk will abate over the next 12 months, allowing for a re-rating of the two stocks.
Kalachev and Mallin-Jones also see African Barrick Gold as a ‘buy’ and have named Centamin as a ‘speculative buy’. Rangold Resources, however, remains a ‘hold’ given that its valuation is “fully priced”.
“In the order of preference we recommend: Pan African Resources, African Barrick Gold, Polymetal, Centamin, Petropavlovsk and Rangold,” the analysts said.
BC
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