3 Recommended "Growth in Gold" Stocks

Coming off the most volatile week for gold trading since the third quarter of 2006, gold prices were again on the rise as the U.S. dollar experienced weakness. The gains followed a sharp pull-back from US$845 per ounce.

Some of the fundamentals supporting gold prices include strong investment demand, the record-high Euro, expectations or further interest rate cuts and oil near the US$100 per barrel mark, according to Raymond James analyst Paul O’Brien.

In terms of demand, he highlighted the 18.9 million ounces of gold held by the StreetTRACKS Gold Trust (GLD) and more than 720 tonnes in global gold ETFs. The mid-teir gold producing group is currently trading at 1.3 times 2008 net asset value [NAV], Mr. O’Brien told clients in a note, adding that peak fourth quarter valuations for the year have been 1.6 times NAV.

Given the recent price rebound, the analyst highlighted three recommended “growth in gold” names.

The first is European Goldfields Ltd. (EGFDF.PK), whose primary assets are in Greece. Mr. O’Brien rates it at “outperform” with a price target of C$8.50.

He expects the company will enter the mid-tier level in 2010 with 236,000 ounces of production, in addition to 2.8 million ounces of silver, 76 million pounds of zinc, 59 million pounds of lead and 50 million pounds of copper.

Next is Yamana Gold Inc. (AUY), rated “outperform” with a $16 price target (C$ and US$).

While the company’s analyst tour of its South American properties is in just over a week, Mr. O’Brien expects to see exploration releases soon and a feasibility update for Yamana’s Gualcamayo project in Argentina before the end of the year.

The third name is Agnico-Eagle Mines Ltd. (AEM), also rated “outperform” with a $61 price target (C$ and US$).

Mr. O’Brien noted that its shares trade at the high end of the valuation range. Nonetheless, he likes its growth profile, project pipeline and US$558-million in cash, US$200-million in undrawn credit facilities and estimated US$340-million in internal cash flow coming in the next five quarters.

Mr. O’Brien is looking for a company-wide update for its advanced stage projects and near-producing mines on December 10th, 2007.