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Resolute Mining and Bellevue Gold are Canaccord Genuity’s top gold picks

Bellevue’s recent resource upgrade to 2.2 million ounces at 11.3g/t makes it a standout among pre-production peers.

Resolute Mining Limited - Resolute Mining and Bellevue Gold are Canaccord Genuity’s top gold picks
Resolute Mining offers attractive valuation upside with recent capital raising alleviating balance sheet concerns

US gold prices have climbed again today after surging more than 3% in the previous session as the US Federal Reserve cut interest rates to help soften the economic blow from the coronavirus outbreak.

Spot US$ gold prices rose 0.3% to $1,644.97 an ounce, having registered its biggest one-day percentage gain since 2016 in the previous session.

US gold futures climbed 0.2% to $1,646.80. The Fed cut interest rates in an emergency move to safeguard the world's largest economy from the impact of the coronavirus epidemic.

Canaccord Genuity recently published a report highlighting the recent rise in US$ gold prices and its impact on ASX listed mid- and small-cap gold producers and developers/explorers.

Resolute Mining Limited (ASX:RSG) is the top pick from small-cap producers while Bellevue Gold Ltd (ASX:BGL) is the top pick from developers/explorers.

Following is an extract from Canaccord Genuity’s report:

Go for gold

US$ gold prices at 6-year highs, while A$ gold at an all-time record: US$ gold prices have hit US$1,659/oz (at the time of writing), up 10% YTD, and at a level not seen since 2013. Similarly, A$ gold prices have also moved higher, up 15% YTD, trading at record highs of A$2,508/oz.

Supportive underlying macro compounded by safe-haven buying on coronavirus fears: Ongoing supportive macro factors for gold include huge amounts of negative-yielding debt, negative real rates, ongoing central bank easing, absence of inflation, and increased central bank buying. More recently, fears of the spread of the coronavirus beyond China have spurred a wave of safe-haven buying.

Gold equities - undervalued relative to gold price (and by historical standards?): Our gold producer coverage is trading at an avg implied gold price of US$1,334/oz, -9% vs spot. Similarly, the avg m/cap weighted P/NAV of our producer coverage is 0.82x, vs recent longer-run averages of +1x. Australian gold equities also look undervalued by historical standards, with the ASX Gold Index only now back to 2011 levels, despite A$ gold prices having increased by 101% over the same period. We advocate increasing exposure to gold equities as a hedge against current volatile market conditions.

Updated gold price/FX deck: Updated forward curve pricing assumptions for US$ gold see LT (2025) prices up by 9.6% to US$1,787/oz, with nearer-term (2020-2023) prices increasing by an avg of ~8.5%. Our LT AUD:USD assumptions have decreased by 3.7% to 0.669, resulting in a 14% increase to LT A$ gold prices to A$2,670/oz.

Rating & Target Price changes: Revisions to our gold/FX deck result in an average 20% increase to our mid- and small-cap producer target prices and a 24% increase for developers/explorers (see sidebar).

Rating changes include upgrades to BUY (from HOLD) for EVN, RRL, SAR and SLR.

Top pick - Mid-caps: SAR.ASX offers the best valuation upside in the immediate peer group (P/NAV 0.77x), in our view, supported by strong production growth potential (Super Pit) and 100% exposure to A$ gold prices.

Top pick - Small-caps: RSG.ASX offers attractive valuation upside (P/NAV 0.58x), in our opinion, with recent capital raising alleviating balance sheet concerns. Leverage to gold prices and operational turnaround at Syama delivering strong FCF expectations.

Top pick - Developers/Explorers: BGL.ASX's recent resource upgrade to 2.2Moz at 11.3g/t makes it a standout among pre-production peers. We see potential for further high-grade resource growth, and takeover appeal.

Quick facts: Resolute Mining Limited

Price: 1.125 AUD

Market: ASX
Market Cap: $1.24 billion

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