While 2011 served as a very challenging year for most gold stocks, the outlook for 2012 is much brighter, according to equity research analysts at Macquarie. In a report published this morning, the firm noted that “As we move into 2012, gold equity valuations on prevailing price curves are near-record lows with most equities trading more than 20% below 2008 crisis levels as valued on the forward curve.”
“In 2012 we expect operating and capital cost increases in the gold sector to wane as producer (e.g., AUD and CAD) currency appreciation slows and wait lists shorten for capital development items,” Macquarie added. “We see potential for more material revisions to corporate dividend policies in 2012 as long as gold prices remain at current levels or above.”
In support of its dividend argument, Macquarie pointed to the outperformance of shares of Newmont Mining (NEM) in 2011 – one of the few large-cap producers to increase its dividend payout ratio last year.
“Newmont’s strong share outperformance subsequent to the establishment of its progressive dividend policy is likely to be a key topic of conversation at gold company annual board meeting in the coming months,” the firm asserted. “The more notable positive revisions to dividend policy are likely to come from Barrick, Yamana, IAMGOLD, Goldcorp, Agnico-Eagle and Aurico. Improved dividend policies will likely be required to generate new investment flows from dividend funds and yield-focused investors. We would not be surprised to see yields from many of the above-listed names in the 2% to 3% range by YE12.”
While Macquarie acknowledged that gold’s sell-off in the fourth quarter of 2011 will undoubtedly have a negative impact on upcoming earnings for the sector, it expects the weakness to be “short lived.” Its optimistic outlook was based in large part on the prediction that gold will rebound significantly in 2012 and average $2,006 per ounce – which will allow for “material increases” in earnings per share in the coming year.
As for particular gold stocks it likes, Macquarie highlighted Barrick Gold (ABX.TSX, NYSE: ABX) and Kinross Gold (K.TSX, NYSE: KGC) as its “Top Picks.” Both companies are currently trading “more than 40% below fair value” based on various metrics. Among mid-cap producers, the firm recommended AuRico Gold (AUQ.TSX, NYSE: AUQ) and B2Gold (BTO.TSX).
Macquarie’s target price for each of the aforementioned stocks, along with the premium to each’s current price, follows:
Barrick Gold (ABX.TSX) – C$73.00, 52%
Kinross Gold (K.TSX) – C$19.50, 57%
AuRico Gold (AUQ.TSX) – C$12.50, 47%
B2Gold (BTO.TSX) – C$5.50, 76%
Crocodile Gold Provides Update on Luxor Capital Bid
Crocodile Gold noted that the offer from Luxor – a U.S.-based investment fund manager – will be conditional upon there having been validly deposited and not withdrawn a number of common shares which, when combined with the common shares already owned and controlled by the funds managed by Luxor, represent at least 50% of the issued and outstanding common shares of CRK.TSX. Full Crocodile Gold News Release.
- Luxor’s offer of C$0.56 per share represents a 60% premium to the December 13, 2011 closing price of CRK.TSX – the day prior to the announcement of the bid
- Crocodile Gold has established a special committee of independent directors to consider whether the offer is in the best interest of the Company's shareholders and whether it represents fair value
- Crocodile Gold has advised its shareholders to await the results of the review and recommendation from the Board of Directors before making any decisions with respect to the offer from Luxor