Analysts at National Bank Financial see the expectation for declining real rates supporting precious metal prices with equity valuations remaining near trough levels.
“We outlined a constructive outlook for precious metal prices within our 2024 Year Ahead Thematic,” they said in a research report. “With an improving outlook for declining real rates, heightened geopolitical risk and continued strong global central bank purchases, gold/silver prices have responded favourably up 11.1 per cent and 14.2 per cent year-to-date, respectively. We’ve updated estimates and price deck on the back of a strong gold tape to start the year which has seen numerous names across our coverage show significant share price gains.”
“Despite the significant increase in precious metal prices, equity valuations remain near trough levels and are poised to play catch up. Generally, we believe under this scenario, the best gold companies to invest in are those with well-funded near-term production growth, a strong balance sheet and upcoming catalysts. As inflationary pressures subside and costs stabilize, companies will have more confidence in allocating excess cash flows towards shareholder returns. Given anticipated volatility and elevated precious metal prices, names that exhibit the most sensitivity to gold prices include: FR, EQX and ORA.”
After increasing the firm’s long-term gold price estimate to US$1,700 per ounce (from US$1,650), the group see market conditions remaining supportive of consolidation.
“We continue to see support on key themes throughout the year including strong FCF generation and increased consolidation throughout the sector. Names that continue to screen well as targets for M&A include AYA, ARIS, ELD, EQX and KNT, while potential acquirers include K, AEM and CG. Names that exhibit the highest beta to gold include CDE, IMG, IAU and LGD,” they said.
The analysts adjusted their target prices for stocks across their coverage universe to reflect their new price deck assumptions. For senior producers, their changes are:
- Agnico Eagle Mines Ltd. (AEM-T, “outperform”) to $105 from $85. The average is $89.74.