Goldcorp Pricing Itself Out of Consideration, But Buys Reside Elsewhere - UBS

With the price of gold once again approaching $1,000 an ounce, UBS has taken another look at its gold sector coverage and raised its price targets on most of the 10 senior gold producers in its coverage universe.

Citing strong operating performance after recent first quarter results and currency adjustments, analyst Brian MacArthur has raised 12-month target prices on average 8%.

Of note is Goldcorp (GG), which has performed so strongly in recent months it has priced itself out of most investors' reach.

"Given the shares are up 19% on one month, we downgrade our rating from Buy to Neutral," Mr. MacArthur said in a note Tuesday.

He has upped the target price to $40 from $37 to reflect the closing of a recent C$840-million private offering to be used to pay off about C$330-million in debt and capital expenditures, as well as low overall cash costs, un-hedged growth, low political risk and exploration potential.

The company also expects to increase production more than 50% in the next five years, to 3.5 million ounces.

Elsewhere in the sector, Mr. MacArthur has raised Alamos Gold (AGIGF.PK) to a "Buy" from "Neutral" with a new target price of C$11.50, from C$11. He is also sweet on Eldorado Gold (EGO) and Gammon Gold (GRS), both of which get double-digit increases in their target prices and maintain a "Buy."

The only gold producer with no change is Centerra Gold (CAGDF.PK), which remains at C$9.75 and keeps its "Buy" rating.

Comments

[GMiki1:]

Weird in re GG, which is very far from its all-time high, still, yet has constant resource improvements.

Jun 09 01:36 PM

[Mad Hedge F...:]

Check this out. Brace yourself for the impending gold shortage. Gold shortage? Yup. Last year, South Africa suffered its steepest decline in gold production since 1901, falling 14%, to a mere 232 tons. It now ranks only third in global production of the yellow metal, after China and the US. Severe electricity rationing, a shortage of skilled workers, and more stringent mine safety regulations have been blamed. Choked off credit has frozen the development of new capital intensive deep mines, as it has for everybody else. Rising production costs have driven the global breakeven cost of new gold production up to $500 an ounce. In the meantime, the financial crisis has driven flight to safety demand for gold bars and coins to all time highs. Last year, the US Treasury ran out of one ounce $50 American Gold Eagle coins, now worth about $980. Competitive devaluations by almost every central bank, except Japan, mean that currencies are not performing as the hedge that many had hoped. It all has the makings of a serious gold shortage for the future. Could last year’s downturn be a blip in the eight year bull market? When we break $1,000, which could happen any day now, watch out above!

Jun 09 06:45 PM

[esotericist:]

"low overall cash costs, un-hedged growth, low political risk and exploration potential."

That's why it's worth $80 a share. And they want a piece of it. Hence the heavily caveated 'downgrade'...

Jun 09 07:47 PM

[daveddawg:]

Like esoterericist said, with an addition, NO DEBT & 1/2 Bil in the kitty, you have to consider the source of this downgrade-UBS, one of the major short position holders in the COMEX gold. This downgrade is a great buy signal. What more does one want? This is the best company that digs real money out of the ground.


On Jun 09 07:47 PM esotericist wrote:

> "low overall cash costs, un-hedged growth, low political risk and
> exploration potential."
>
> That's why it's worth $80 a share. And they want a piece of it. Hence
> the heavily caveated 'downgrade'...

Jun 09 09:45 PM