With gold prices closing in on a 26-year high, this is a good time to check which companies stand to benefit the most. In its weekly note to clients on the metals and mining industry, UBS metals analysts have figured out which companies in their coverage universe have the highest leverage to changes in the gold price. The degree of leverage is based on operating cost structure, exposure to base metals, and growth in gold production.
UBS found that high-cost producers Golden Star Resources Ltd. (NYSEMKT:GSS), and Alamos Gold Inc. (AGIGF.PK) have the most leverage. Golden Star's net asset value (NYSE:NAV) is calculated to grow 34% if gold moves from $650/oz to $750/oz, the analysts said, while Alamos would experience a 34% jump in its NAV.
At the bottom of the list is Centerra Gold Corp., [CG/TSX] which would get a mere 13% hike in its NAV with a $100/oz bump in the gold price. The average move for all the companies is 22%.
The analysts wrote that:
Equity performance should significantly exceed the leverage as most companies trade at multiples to net asset value. Traditionally, for every 10% move in bullion, gold equities move 15%-25%.