Investec has capitulated to the recent movements in the gold price and chopped its price forecast for the metal for this year and up to 2016 to US$1,400.
The South African broker had been one of most bullish gold forecasters for this year at US$1,650, but following the recent decline a more prudent estimate is now required it believes.
The broker says there still remains sufficient macro-economic uncertainty for gold to go higher, but sentiment has been hit hard in recent months and this will have an impact on investment demand.
The recent surge in demand from retail markets may also have brought forward purchases, leading possibly to weaker medium term demand.
Companies with the greatest sensitivity to the reduced gold price are Amara (LON:AMA), Avocet (LON:AVM) and African Barrick Gold, says the broker, while Centamin and Randgold Resources are among the best positioned.
Afrcian Barrick’s (LON:ABG) target price is cut to 135p from 286p. The Afrcia-based gold group is currently conducting a full operational review, and Investec says a practical outcome cannot come too soon, since on its assumptions ABG will start to face a cash shortfall.
Amara’s Kalsaka mine is a high cost operation with a short life, although costs are set to start coming down in the second half as the company moves to access the Sega ore body.
The longer term future of the company is dependent on the development of its Baomahun and Yaoure projects in Sierra Leone and Cote D‟Ivoire respectively. Investec’s target price has been cut to 23p from 57p.
For Avocet, adjusting to an environment of US$1,400/oz gold will require some serious changes.
The current mine plan for Inata is not feasible and would lead to a substantial financing requirement in the next 6-12 months, as the plan involves accelerated mining followed by processing of stockpiles. Target price is now 8.3p from 24.5p.
Of the better positioned groups, Investec said Centamin (LON:CEY) has a robust balance sheet, with most of its expansion programme already completed.
There remains only about $50mln to spend on the $325mln Stage 4 expansion programme, while it currently has $189mln in liquid assets, including $132mln in cash.
It still offers good value at our rebased gold price assumptions and with production expected to ramp up towards 450koz/pa at cash costs of c.$750/oz. Target price is 45.5p from 67.5p.
Randgold Resources (LON:RRS) meanwhile has been proactive in managing its cash flows in light of the weaker gold price, having recently scaled back its FY13 capital spend from $670m to $626m.
The appeal of Randgold lies in its management, growth, scale, operating margins and diversity, though in the current environment the recommendation reduces to a hold and target price to 4,981p from 6,181p.