Barrick, Goldcorp and Kinross Continue to Outperform

TD Newcrest's long-time base metals analyst Greg Barnes is moving upmarket after initiating coverage on a trio of Canada top senior gold producers.

In a note to clients, Mr. Barnes said:

With gold prices rallying, the senior gold producers have significantly outperformed their junior peers.

We believe that investors, some of whom are new to the sector, are rewarding strong cash flow growth matched with less risk, as gold has become more attractive during a period of turbulence in financial markets and global politics. For the first time in a very long time, gold is perceived as acting as a safety net, or an insurance policy, against continued economic and political turbulence.

Mr. Barnes initiated coverage on three of the biggest names in the game, including Goldcorp Inc. (GG), Barrick Gold Corp. (ABX), and Kinross Gold Corp. (KGC). All three gold miners will report fourth quarter results on Feb 21.

He told clients that Goldcorp can be considered a core holding for investors searching for high margin, lower risk sustainable production growth and said the Penasquito project is possibly the most robust of the major development projects being undertaken by the senior gold producers. He rates Goldcorp shares a "buy" with a $42 price target.

Barrick Gold is also a "buy" recommendation with a $56 target price. With ongoing challenges in maintaining low cost production growth long term, Mr. Barnes said Barrick is likely to lead the consolidation effort in the industry going forward.

Kinross, meanwhile, is rated "hold" with a $23 target price.

The analyst wrote:

Kinross has better production growth over the next few years relative to its larger rivals – we are expecting production to increase 70% between 2007 and 2010 to 2.5 million ounces per year. However, the production growth reverses beyond 2010 and slips below 2.0 million ounces by 2013.

KGC vs. GG vs. ABX 1-yr chart: