As gold futures logged their biggest one-day gain in over a year, Canadian gold bug John Ing said he expects the yellow metal to regain more of its lost glitter, a move that should give a boost to beaten-down mining stocks.
“We continue to expect gold to reach $2,000 an ounce this year and ultimately US$10,000,’’ wrote the Toronto-based President of Maison Placements Canada Ltd. in a new report.
One of Canada’s best known analysts, Ing is well known for his bullish predictions when it comes to gold.
While conceding that the recent drop was sharper than expected, he says the bullion market remains intact especially after a 30% decline, which has made ownership of the physical metal more desirable.
Gold will inevitably be driven higher, he says, as investors seek insurance against unresolved economic and political risks, including the increase in U.S. sovereign debt and the continuation of the U.S. Federal Reserve’s quantitative easing (QE) program.
In the near term, Ing expects to see a technical bounce that will push the price to US$1,350. “Gold will then find meaningful resistance at US$1,550 an ounce, prompting the “johnnies come lately” to declare a new bull market,” he wrote.
Meanwhile, here is a summary of what Ing has to say about a select group of gold stocks:
Agnico-Eagle Mines Ltd. (
TSX: T.AEM,
Stock Forum) and (
NYSE: AEM,
Stock Forum).
Agnico-Eagle’s quarter was in line with the Street’s expectations and importantly all-in costs remain less than US$1,000 an ounce. Nonetheless Agnico-Eagle’s shares are trading at net asset value (NAV). Agnico has taken advantage of the collapse [in the price of gold] to buy stakes in four junior mining companies with interesting exploration upside. We like the shares here.
Barrick Gold Corp. (
TSX: T.ABX,
Stock Forum) (
NYSE: ABX,
Stock Forum)
Despite the ballooning cost of the Pascua Lama project on the border between Chile and Argentina, Ing says Barrick’s misfortunes are overdone and over-exaggerated. Barrick still has a treasury of $2 billion in cash and an undrawn credit line of $2 billion, he says. The bottom line is that with 60% of the company’s production from only five mines, Barrick has options, Ing writes. We believe that Barrick is a trade down here.
Goldcorp Inc. (
TSX: T.G,
Stock Forum) (
NYSE: GG,
Stock Forum)
“Goldcorp has a great balance sheet with almost $2 billion in cash, however its multi-billion cornerstone Penasquito poly-metallic mine in Mexico has become Goldcorp’s Pascua Lama with another disappointing quarter (water and low grades this time). And now a legal dispute over ownership of part of the open pit has surfaced. In addition, the newly opened Pueblo Viejo mine (in the Dominican Republic), which Goldcorp shares with Barrick, is also faced with a revised deal, after the government pushed for a higher stake. Goldcorp should produce about 2.6 million ounces this year at a total cost of US$1,100 per ounce. We prefer Barrick here.
Kinross Gold Corp. (
TSX: T.K,
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NYSE: KGC,
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Ing is telling investors to “sell” Kinross Gold. The company has said it expects to take a $720 million write-off on the Fruta del Norte project in Ecuador after electing to walk away from the project. “We believe that Tasiast [gold project in Mauritania, West Africa] is an albatross and the revised mine plan is still questionable given that Kinross expects to spend $27 billion more to develop the project. After writing off $5.5 billion, mostly due to Tasiast, we believe [Kinross CEO] Paul Rollinson’s decision to prune expenses should include Tasiast.
Iamgold Corp. (
TSX: T.IMG,
Stock Forum) (
NYSE: IAG,
Stock Forum)
Ing says he would avoid the stock here. Iamgold’s results have been a disaster as costs rise. Despite a capital constrained environment, Iamgold persists in the development of Cote Lake (gold project in Ontario) despite the $1 billion expenditure. Iamgold’s focus on costs is also limited because they are not the operator of some of its mines and thus have no control over costs. Iamgold should also sell Niobec (Niobium mine in Quebec) and concentrate on gold mining.
Newmont Mining Corp. (
NYSE: NEM,
Stock Forum)
Newmont should think of merging with another entity to prune costs and maximize the value of its assets.
Yamana Gold Inc. (
TSX: T.YRI,
Stock Forum) (
NYSE: AUY,
Stock Forum)
Yamana owns seven operating mines in Mexico, South America and reported a drop in earnings due to higher costs. Yamana’s all-in costs are low $900 an ounce, producing 1.4 million gold equivalent, principally ounces from flagship El Penon [northern Chile]. Yamana’s heavy copper exposure will hurt overall costs as well as higher cost Jacobina and Ernesto/Pau-a-Pique [in Brazil]. We prefer Agnico-Eagle at this time.