Gold stocks have been serial wealth destroyers for well over a year now, with shares sliding even as the price of the precious metal rallies. The worst performers have been companies run by hired help that make stupid acquisitions or allow capital costs on new projects to soar.
Given the easy-to-recognize hallmarks of lousy gold companies, Raymond James Ltd. says investors have to focus on companies that are likely to limit “the risk of material disappointments.”
To that end, the firm has issued an outlook for gold this year with six top picks:
Yamana Gold Inc. Raymond James cites its track record of performance while offering growth from projects of a manageable size;
B2Gold Corp. The analysts like its “impressive” production, cash flow growth and exploration potential;
Endeavour Mining Corp. It gets the nod because its output is growing but the shares are trading at a multiple more common among development-stage companies;
Detour Gold Corp. Raymond James notes it has a great project in Ontario that is poised to become a “significant gold-producing asset in a stable region”;
Continental Gold Ltd. It’s well financed and has impressive ore grades, says Raymond James;
Guyana Goldfields Inc.: “At the forefront of the developer peer group” based on the enhanced economics and initial capital costs of its Aurora project, it says.
“The focus should be on producers best placed to deliver on expectations, as well as developers with projects that standout not only on economics and flexibility, but also on finance-ability,” Raymond James said in a note to clients.
There is scuttlebutt around the industry that mining costs are starting to level out, which would be a big plus for investors. But Raymond James says “we don’t expect costs to decline materially this year as costs have historically been sticky on the downside.”
Raymond James is tweaking slightly its estimate of the gold price this year, projecting it will trade for an average of $1,750 U.S. an ounce, down from a previous forecast of $1,780. It foresees the metal trading in range from $1,550 to $1,900 and comments that prices will be at “relatively robust levels.”
Other firms are cutting their estimates too, but not by much. Citigroup said earlier in the week that its analysts are cutting their price forecast by 4 per cent to $1,675 an ounce.