Top pick - why - increasing reserves!
June 25 (Bloomberg) -- Gold stocks have failed to keep up with bullion prices this year. As mining costs slow and as the companies find more gold that can be mined at a profit, the shares have every reason to rebound.
Mining costs, which have doubled in the past seven years, are starting to moderate as some producers focus on larger, higher-grade mines in countries where operating expenses are lower. Average total cash costs for North American producers are forecast by National Bank Financial Inc. to fall 1.9 percent in 2008 after gaining by more than a fifth this year.
Goldcorp Inc., Canada's second-largest gold producer, and Agnico-Eagle Mines Ltd., the country's No. 4, are among companies increasing reserves, a measure of gold in the ground that can be extracted profitably. Gold companies are also selling fewer forward contracts to lock in higher prices, suggesting they expect bullion to climb.
``I will be particularly interested in those companies that have got prolific reserves and then are blessed with a very low production cost,'' said Alfred Wong, who helps manage $16 billion at UOB Asset Management Ltd. in Singapore. He has bought shares of Agnico-Eagle of Toronto, Eldorado Gold Corp. and Goldcorp, both of Vancouver, in the past month.
Agnico-Eagle and Goldcorp are National Bank Financial's top picks. Eldorado's cash costs are set to fall 27 percent and output will increase almost threefold by 2009 after opening mines in China and Turkey, according to a June 7 report by Credit Suisse Group.
Low Costs, Increased Production
Gold producers able to contain costs while increasing production are most attractive when gold prices rise, said James Holt, who helps manage the equivalent of $5.3 billion at Zurich Financial Services Ltd. in Sydney. Goldcorp, which operates mines in North and South America, has among the lowest cash costs among gold companies in the world, said Holt.
Goldcorp has said it will announce an increase in reserves at its Penasquito project in Mexico. Agnico-Eagle expects to lift reserves at projects in Finland, Mexico and Canada to as much as 20 million ounces of gold by the end of 2008.