Canaccord Genuity analysts Wendell Zerb and Nicholas Campbell say oversold gold equities are due for a rally that could be driven by a series of correcting factors, including a possible U.S. economic hiccup and further monetary easing by the U.S. Federal Reserve.
The forecast comes in a junior mining report which takes a look at how awful it’s been for junior gold equities lately and what may be coming next. During a correction which has spanned just over four months, the S&P/TSX Global Gold Index is down by about 28%. In the same period, bullion fell 9%, Zerb writes.
“That being said, sector weakness (less than one year) in the gold equities over the last six years has typically ended with “V” shaped corrections to the upside,’’ he said. “Regardless of what the long-term trend may be for bullion, we expect a series of correcting factors to swing sentiment on gold equities to the positive.’’
Such factors might include a U.S. dollar correction and future efforts to stimulate the U.S. economy.
“While the Federal Reserve has hinted that there will be no further monetary easing, we find this hard to believe given the state of its balance sheet,’’ Zerb said.
Keeping all of that in mind, here are Canaccord’s Focus List Top Picks:
Atna Resources Ltd. (TSX: T.ATN, Stock Forum), speculative buy rating, $3.20 target. Atna traded this week at $1.08, giving the company a $127.5 million market cap, based on 118 million shares outstanding. The 52-week range is $1.54 and 52 cents.
“We believe that Atna has the potential to expand its gold production from 33,000 ounces per year to over 150,000 ounces by 2014,’’ said Zerb. New open pit resources at the Pinson mine in Nevada could drive production over 200,000 ounces by 2015.
MAG Silver Corp. (TSX: T.MAG, Stock Forum), speculative buy rating, and $18 target. MAG traded at $10 this week, MAG Silver has a market cap of $556.7 million, based on 55.6 million shares outstanding. The 52-week range is $13.35 and $6.17.
MAG’s key asset is a 44% interest in the Juanicipio silver, lead, zinc project in Mexico (56%-owned by Fresnillo Plc). An updated scoping study for the Juanicipio project is expected soon (second quarter 2012). Given the improvement in the average grade of the project, we expect the study to outline an operation capable of producing 14-15 million ounces of silver per year, with negative life-of-mine cash costs (after lead, zinc, and gold by-product credits), Zerb said.
SilverCrest Mines Inc. (TSX: V.SVL, Stock Forum), speculative buy rating, $5.75 target. SilverCrest traded this week at $2.49, giving the company a market cap of $223.4 million, based on 89.7 million shares outstanding. The 52-week range is $3.17 and $1.07.
“SVL is producing roughly 1.5 million ounces of silver-equivalent per year from its Santa Elena silver-gold mine (100%, Mexico). Through the expansion of the Santa Elena mine, production is expected to increase to 4.6 million ounces of silver-equivalent by 2014,’’ Zerb said. He also sees the potential for SilverCrest to develop a 200 million plus ounce silver-equivalent resource in late 2012 at the La Joya project, which is also located in Mexico, about 75 kilometres southeast of Durango. An initial estimate returned a silver-equivalent resource of 86 million ounces at La Joya.