Gold is the one commodity that has performed in recent months, so it is no surprise that the producers are doing well. But according to analysts at Canaccord Adams, there is finally some momentum building in the long-dormant juniors as well.
The senior and intermediate producers are booming because of a combination of high prices, falling costs and favourable currency moves. Canaccord analysts Wendell Zerb, Eric Zaunscherb and Nicholas Campbell estimated that the are trading at a price-to-NAV multiple of 1.5 times, up from 1.13 times last October.
That is trickling down into junior producers and developers as well, the analysts wrote. They calculated that the average market value for in-situ ounces of gold is $29.20 an ounce, up 22% in three months.
They wrote in a note to clients:
As the multiples on larger-cap precious metal producers expand, investors tend to switch some of their investments from the producers that have outperformed to smaller-cap gold producers where multiple expansion is slower to take hold. This trend toward smaller caps, and in theory better value, eventually reaches into the explorecos.
Given the recent wave of senior gold financings, they also predicted that another round of consolidation could take hold in the junior space. Kinross Gold Corp. (NYSE:KGC), for example, just raised $360-million and is eager to make acquisitions. The analysts suggested that junior targets could include Andina Minerals Inc. (OTC:ADMNF), Detour Gold Corp. (OTCPK:DRGDF), Exeter Resources Corp. (NYSEMKT:XRA), Osisko Mining Corp. (OSKFF.PK), and Rainy River Resources Ltd. (OTC:RRFFF).
But they also left a word of caution: the second quarter tends to be weak for gold prices and equities, and there has been little exploration success to get investors excited about M&A. And if the gold price retrenches back to $750 an ounce, the small caps could sink back to recent lows.