Inside the Market’s roundup of some of today’s key analyst actions. This post will be updated with more analyst commentary during the trading day.
Canaccord Genuity has slashed its outlook for gold and silver prices, resulting in sweeping downgrades and price target cuts for many of the precious metals stocks it covers.
The Canaccord analysts, led by Rahul Paul, lowered their 12-month forecast for gold to $1,350 (U.S.) an ounce from $1,750, and for silver to $23 an ounce from $32.50. Their new forecasts assume gold and silver prices will stay at those new averages for 2014 through 2017.
But the action did not reflect a shift in their longer-term optimism about gold and silver prices; rather, they think a recovery in the commodity markets will take longer than they first forecast. They believe investors in equities are likely to make decisions based on prevailing gold prices over the coming year, not by how much higher bullion will rise over the long term.
“We remain optimistic that the gold price should move substantially higher longer term, given our view that the current environment will likely not justify development of meaningful new gold projects and could lead to reserve declines in the sector, thereby leading to declining global mine supply going forward,” the Canaccord analysts said in a research note. “We also believe that gold’s status as a precious metal, reserve asset and inflation hedge is unlikely to change, thereby continuing to drive ongoing investment and jewellery demand. Despite the year-to-date selling (ETF and COMEX speculative contracts) that has led to an approximate 23 per cent decline in the gold price this year, we expect increased physical and jewellery demand to keep overall demand relatively stable going forward.”
With its revised view on precious metals prices over the coming year, the Canaccord analysts forecast about a 32 per cent decline in earnings for the producers it covers.
The rating downgrades and revised price target changes are as follows:
Alamos Gold Inc. downgraded to “hold” from “buy” with the price target dropping to $15.50 (U.S.) from $18. The average analyst target is $16.66, according to Bloomberg data.
“Alamos remains better positioned than many of its peers to weather a prolonged period of depressed gold prices, thanks to a strong balance sheet (US$373-million cash/US$496-million in working capital as of March 31, 2013) and low cost, profitable production from Mulatos. Under our revised gold price forecasts, we see no external financing requirements to develop the Turkish projects, although we believe any delays in the permitting process could push out our estimated start-up timelines.”
Galane Gold Ltd. downgraded to “hold” from “speculative buy” with the target cut to 20 cents (Canadian) from 80 cents. The average target is 20 cents.
"Based on our current gold price forecasts, we estimate that the Mupane gold mine may be cash flow negative, possibly leading management to put the mine on care and maintenance. Also of concern would be the scheduled debt repayments to IAMGOLD, i.e., $2.53-million due by Q1/14 (due in two installments of $1.26-million each on August 30, 2013 and February 28, 2014, respectively), but we anticipate that IAMGOLD (the largest holder of Galane equity) may be open to extending the repayment deadlines if liquidity constraints were to persist for long). Given the small market cap, we still believe there may be some optionality to higher gold prices or salvage value associated with the infrastructure and/or equipment, thereby limiting downside potential from these levels."
Golden Queen Mining Corp. downgraded to “hold” from “speculative buy” with the target price cut to $1 (Canadian) from $1.65. The average target is $1.
"The (gold price) revisions had significant negative impacts on our underlying valuations for the company’s Soledad Mountain open pit, heap leach project (California), and hence our target price."
Golden Star Resources Ltd. downgraded to “sell” from “hold” with the target cut to 20 cents (U.S.) from $1. The average target is 61 cents.