Gold continues its downturn.
The price of the precious metal was $1157.35 per troy ounce on the London Bullion Market today and reported a 0.11% decline from the previous close.
Gold is also going down on the Comex Futures market. It is trading at $1,160.55, down $5.25 (or 0.45%) from the previous close. This is the 23rd dip out of a total of 32 changes in the price of gold futures since the beginning of November:
The average price of gold futures on the Comex is $1,214.11 per ounce, ranging between a high of $1,318.60 per ounce and a low of $1,153.00 per ounce, with a difference of $165.60 per ounce that represents a change of -8.78%.
Despite a terrible November and start to December, analysts believe the precious metal will start to uptrend again as expectations on an interest rate hike in the next Federal Open Market Committee meeting continue to mount.
Between December and January, gold should start to uptrend again due to the Christmas holidays and wedding season in India. These events should drive up the demand for gold and therefore cause a surge in the price.
Due to the aforementioned factors, RBC Capital has upgraded the following gold mining stocks:
Yamana Gold Inc. (AUY, Financial) has been upgraded by the firm from perform to outperform and set a target price of $4.50. The new target price represents a 35.7% decline from the previous target price of $7 per share set by analysts at the Royal Bank of Canada and a 19.4% decline from the analysts’ average target price of $5.58 per share.
The average price ranges between a low price per share of $3.10 and a high price per share of $7.11.
As the majority of analysts recommend to buy Yamana Gold, seeing the gold stock as one that will benefit the most from rising gold prices, analysts at RBC Capital forecast a 52% upside in the share price of this gold stock from the current market prices.
Yesterday, Ă‚ Yamana Gold closed at $2.97, up eight cents (or 2.77%) from the previous trading day, with 10,932,372 shares traded on the New York Stock Exchange.Ă‚
Based on yesterday's closing price, Yamana Gold Inc. has a market capitalization of $2.8 billion and 947.59 million shares outstanding, of which 946.21 million shares can be traded on the New York Stock Exchange.
During the third quarter, Donald Smith (Trades, Portfolio) and David Dreman (Trades, Portfolio) reduced their positions in Yamana Gold by 4.49% and 0.33%.
Among the top institutional investors holders of Yamana Gold, Van Eck Associates Corp. stands out with 60,473,992 shares, or 6.38% of the total shares outstanding, valued at approximately $260.6 million.
RBC Capital sees Yamana Gold as one of the cheapest gold mining stocks in the industry. As a matter of fact, the gold stock is trading only at 0.57 times and 7.71 times the book value per share and the Ebitda, and below average compared to Yamana’s peers:
RBC Capital’s upgrade of Yamana is justified by Yamana’s beta gold. The beta gold represents the exposure of the gold stock’s return on the NYSE to changes in the gold price. Yamana's beta gold is one of the highest in the gold industry, as shown in the chart below.
The betas are computed through a multifactor regression model from Nov. 30, 2015 to Nov. 30, 2016 for a total of 253 daily observations, .
RBC Capital has also upgraded other two gold mining companies from perform to outperform: Tahoe Resources (TAHO, Financial) and Alamos Gold (AGI, Financial).
For Tahoe, analysts at RBC Capital have set a target price of $19, representing a 29.6% decline from the previous target price of $27 per share and a 92.5% increase from the current share price.
Yesterday, Tahoe Resources closed at $9.87, up 32 cents (or 3.34%) from the previous close, with 1,537,726 shares traded on Nasdaq.
The precious metals producer undertakes mining operations in the Americas. In particular, Tahoe extracts silver from the Escobal mine in Guatemala and gold from the La Arena and Shahuindo mines in Peru. They also have operations in the Canadian Timmins West and Bell Creek mines.
Tahoe Resources has a market capitalization of $3.06 billion and is trading 1.21 times its book value and 7.32 times its Ebitda.
The company has $142.44 million in cash and the total debt amounted to $ 54.24 million, as of the most recent quarter results.
For Alamos Gold, analysts at RBC Capital have set a target price of $8.50, representing a 29.2% decline from the previous target price of $12 per share and a 31% increase from the current share price.
Yesterday,Ă‚ Alamos Gold closed at $6.49, up 44 cents (or 7.27%) from the previous close, with 4,155,552 shares traded on the New York Stock Exchange.
The Canadian gold producer undertakes mining operations in North America. The gold mining company specifically extracts gold from the Canadian Young-Davidson Mine north of Ontario and from the Mexican mines Mulatos and El Chanate.
The gold producer is also undertaking several gold projects in Canada, the U.S., Mexico and Turkey that have potential for further expanding the company’s operations.
Alamos Gold has a market capitalization of $1.73 billion and is trading 0.97 times its book value and 13.88 times its Ebitda.
The company has $287 million in cash and the total debt amounted to $307.6 million, as of the most recent quarter results.
RBC Capital downgraded Gold Fields Ltd. (GFI, Financial) from outperform to perform, reflecting the current concerns of investors in regard to political instability in South Africa. Mining represents 7% of the country's gross domestic product.
The unclear relationship between President Jacob Zuma and the influential Gupta family is putting the mining industry in South Africa in a very difficult situation, making gold investments uncertain. Other gold producers like AngloGold Ashanti Ltd. (AU, Financial), Harmony Gold Mining Co. (HMY, Financial) and Sibanye Gold Ltd. (SBGL, Financial) have also been impacted by this instability.
Recently, Neal Froneman, CEO of Sibanye Gold, the biggest South African individual gold producer, said the gold industry “sits on a knife edge” because of new legislation that could vastly increase both the mining ministry’s discretion and the presence of poor management in gold mining companies, as reported by Reuters on Nov. 28.
The decision to downgrade Gold Fields was influenced by the Kirkland Lake Gold Inc. (TSX:KLG, Financial) and Newmarket Gold Inc. (NMI, Financial) merger. Gold Fields and Silver Standard Resources Inc. (SSRI, Financial) also put in a joint bid to acquire Kirkland.
The last offer of 1.44 billion Canadian dollars ($1 billion) was rejected by Kirkland because its advisers determined it was “not financially superior to its own plan to acquire Newmarket Gold Inc.,” as reported by Reuters on Nov. 12. This was the last of three joint bids from Gold Fields and Silver Standard Resources that Kirkland Lake Gold has turned down.
With gold trading down, gold and silver royalty and streaming companies like Osisko Gold Royalties Ltd. (OR, Financial) and Franco-Nevada Corp. (FNV) are currently seen by some investors as one of the best ways to expose their portfolios to gold.
Disclosure: I have no positions in any stock mentioned in this article.
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