From Dundee, their thoughts on how to position yourselves for any rally in the gold equities. Developers/Explorers outperform, followed by the intermediate producers. No mystery here. If seeking greater security in a senior gold while still capturing very significant upside, Goldcorp.
The S&P/TSX Global Gold Index closed yesterday at 250.64, levels last seen in December 2008, and the gold equities have been tracking steadily downward since the end of September 2012 (down 29% from September 21 to the present day, and gold down 11% over the same time horizon). Although it may take time, we expect the gold equities to come back to favour as, 1) the hype associated with the "great rotation" cools, 2) US budget issues persist throughout 2013, 3) the fear of global currency wars continues, and 4) our expectation for inflation over the next few years.Background:Purpose: We decided to analyze which tier of gold equities performed best over the two rally periods in 2012 (from May 15 to June 5, and from July 23 to September 21), to help investors position their portfolios in such a way to reap the greatest benefits from a pop in the gold equities.
It is interesting to note that the performances in both rally periods were similar, in that the developers/explorers led the way, followed by the intermediates, and the bullion was the consistent laggard, adding some weight to the conclusion that developers/explorers could be the place to park some money. We maintain that the developer/explorer group we have under coverage/Under Review are best in class, with high quality management teams and assets, and many have financing in place to continue work despite volatile market conditions.Conclusion: The developer/explorer group has the strongest performance in the two recent rally periods, followed by the intermediates, seniors, junior producers, and finally, gold.
We divided the gold stocks into four categories: seniors, intermediates, junior producers and developers/explorers. We used the stocks we have under formal coverage and Under Review (table below).
Rally period #1 (May 15 – June 5): Developers/Explorers Outperform
Rally period #2 (July 23 – September 21): Developers/Explorers Outperform
Honing in on the Senior Gold Producers:
If seeking greater security in a senior gold while still capturing very significant upside, Goldcorp (Under Review, last close C$33.23) outperformed Barrick (Under Review, last close C$29.64) and Kinross (Under Review, last close C$7.97) in the two rally periods in 2012. We continue to favour Goldcorp among the senior gold producers, especially after attending their Investor Day last week.
Reasons we like Goldcorp:
- High quality management team that communicates clearly their upcoming opportunities and challenges
- The company is on track with its three development projects: Cerro Negro (first prodn late-2013, commercial 2014), Eleonore (first production late-2014, full ramp end-2017) and Cochenour (full ramp up late-2015)
o Combined, the projects should contribute over 1.3MM oz in their first five years of production
- Long-term water strategy study to be complete H1 2013 (affecting Penasquito primarily, but also the nearby Camino Rojo development project)
- Notable exploration upside at Cerro Negro, Camino Rojo and Penasquito
Rally period #1 (May 15 – June 5): Goldcorp outperforms
Rally period #2 (July 23 – September 21): Goldcorp outperforms again
Appendix
Companies included in the analysis:
Source: Bloomberg, Dundee Securities
Rally periods from the beginning of 2012 until the present day (green-hashed lines illustrate the rallies)
Source: Dundee Securities
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