The poor performance of gold miners’ shares compared to the price of bullion has made for some compelling valuations of gold companies, broker Westhouse suggested today.
Mining company management teams are beginning to realise that to regain investor interest they must deliver, both in terms of asset management (i.e. ensuring that production growth and cost targets are met) and shareholder returns (exchange traded funds, or ETFs, do not have dividend yields).
Westhouse highlights Russian miners Highland Gold (LON:HGM) and Petropavlovsk (LON:POG) as attractive. Both have doubled resources since 2009 and could post production growth of 30-40% over the next few years.
Of the two, Highland Gold is the broker’s top pick as it has lowest earnings rating, but it is also trading on the highest yield and has the highest potential upside with a 160p target price.
Petropavlovsk has a 470p price target price. Volume and earnings growth depend on recent expansions performing as expected and the new POX processing facilities operating without hitch so there is risk, but Westhouse sees no reason why the company should not perform to expectations.
The broker has also kept a 'buy' stance on Centamin (LON:CEY), but says this a riskier investment for four reasons: the recent legal challenge to its operating lease; uncertainty over retention of the fuel subsidy; the imminent loss of 50% of attributable operating earnings as the Egyptian Mineral Resources Authority begins to receive 50% of the Sukari mine’s net production surplus; and Egyptian President Mursi’s recent decree giving himself sweeping new powers.
African Barrick Gold (LON:ABG), meanwhiile, is a 'hold'. Negotiations between parent Barrick Gold and China National Gold continue and Westhouse forecasts a takeout price of 515p-600p, but it is by no means certain that an offer will materialise and without that ABG is overvalued.