An upward revision of its gold price forecast has prompted Canaccord to reassess its ratings across the listed gold mine sector.
“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.
“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 before easing.
“Our average 2014-2018 gold price assumption rises 6% to US$1,354/oz, and long-term projection rises 5% to US$1,455/oz. This drives EPS upgrades and an average 25% increase in target prices across our coverage.“
The broker has taken a bold stance on the situation in Ukraine and upgraded Russian producers Polyus (LON:POLY) and Petropavlosk (LON:POG) to ‘buy’ as it expects the existing geopolitical risk to abate over 12 months allowing for a rerating. A 14% decline in the ruble since December also improves costs in US dollar terms.
South Africa-focused Pan African Resources (LON:PAF) remains a key pick on robust free cash flow and a high dividend yield of 3.6%, while the recent fall in African Barrick Gold (LON:ABG) is a buying opportunity, even with the overhang risk from parent Barrick’s stake (64%).
Centamin (LON:CEY) remains a 'speculative buy' as a positive final court ruling on the validity of the Sukari mining licence may see the share price re-rate in 2014. Randgold (LON;RRS) is a hold and Avocet (LON:AVM) a sell.