GoldcorpBEN NELMS
Everyone knows that gold stocks are lagging far behind the metal price. Yet no one seems to know why.
The confusion has spread to the gold producers themselves. "CEOs are scratching their heads as to what else can be done other than deliver on record results," noted CIBC World Markets analyst Barry Cooper.
Amazed at what has transpired, the producers are scrambling to generate any sort of interest in their stocks. "We are seeing ever increasing inclusion of ounces into mine plans where the degree of confidence associated with their location and existence is lower than previous consideration," Mr. Cooper noted. "In many cases, the mine plans are now incorporating ounces that have not even made it to an inferred category let alone the usual required measured and indicated classification."
For that reason, Mr. Cooper worries that net asset value could become less useful as a valuation metric, because no one can really trust the number.
Producers have resorted to measures like this because they can't pinpoint the lag on one specific reason. The political safety inherent in gold hasn't helped the miners much, and on the other hand, any mine production problems are typically short-term so they shouldn't have a lasting effect on the stocks.
Mr. Cooper himself is amazed, and assumes that the market is now assessing gold stocks in much shorter time frames. But even when he does that, "we find that gold equities are inexplicably inexpensive under all metrics."
Because he can't fully explain the phenomenon, Mr. Cooper believes that buying has to come back because the performance gap between the metal and the stocks is just too large.
As for the names that could see the biggest rebound, he points out that "grade continues to be the king of the industry." High grades are rare in the gold world and companies with better grades are poised for the best performance.
Examples of these include Goldcorp and San Gold Corp.
Tim Kiladze