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It is now “extremely difficult” to find value in basic metal industries, says Richard Suttmeier on RealMoney.com. But that doesn’t mean share prices can’t move higher.
James Turk, founder of GoldMoney.com, tells Nick Godt on TheStreet.com that, quite apart from its bullish long-term fundamentals, gold could test its historic high of $850 (January 1980) and then push towards its next target of $2,200/oz¬– the inflation-adjusted value of $850/oz in current money terms.
Investors should “avoid hedged producers and focus on pure plays”, such as Newmont (NEM, $53.04), Gold Corp (GG, $30.20) and Gold Fields (GFI, $23.04). The only reasonably priced juniors, says Jack Adamo on Forbes.com, “are located in countries with substantial political risk”. Majors such as Barrick (ABX, $29.52), on the other hand, have done “relatively little during the strong recent run”.
Detractors point to its hedge book and the price it paid for Placer Dome as reasons for its underperformance. But both points are exaggerated. If gold continues to rise, the price Barrick paid for Placer will look like “a bargain”, and its hedge equates to “less than a 2% reduction in a quickly growing revenue stream”.
Credit Suisse recently lifted its 2006 earnings-per-share targets for both Barrick and Newmont to $1.39 and $1.60, putting them on current year multiples of 21.2 times and 33.2 times respectively.
Curtis Hesler in Forbes likes the way chairman and CEO Rob McEwan (formerly of Goldcorp) is building up US Gold (USGL.OB, $9.20), while for something slightly different, he recommends Silver Wheaton (SLW, $10.75) at less than $10 a share. Spun out of Wheaton River, Silver Wheaton “is similar to a royalty company”, in that it owns the silver produced as a by-product from a variety of mines around the world, but doesn’t actually own the mines or any equipment.
That means 100% of its output is silver, which Hesler expects to reach $25/oz sometime “in the future”, compared to its current price of $12.05/oz. The firm has only five employees, is unhedged and expects to increase production from 9.7Moz last year to an expected 15Moz in 2006 and 20Moz in 2009.
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