GOLD ANALYSIS

Is there a new gold rush amongst listed gold stocks?

Most of the targets are in the Americas, but Australia has chipped in a possible big deal; the overall speculative barometer is close to boiling over.

JOHANNESBURG  - 

There has been plenty corporate action among listed gold stocks in the past few months, as dollar gold bullion continues to threaten the all time record nominal highs it made early in December 2009. In the past few hours or so, bullion has made fresh record highs in euro and sterling terms, and other currencies, further fuelling fairly heavy flows of portfolio and speculative monies into listed gold stocks, with focus concentrated on which stock could be the next target.

Measured against other global mining subsectors, gold stocks on aggregate are currently well priced, outpaced only by listed stocks in platinum, silver, iron ore, copper, nickel, and aluminium. There is also no question that the focus amidst around 500 listed gold stocks around the world is concentrated on the mid to smaller capitalisation stocks, which, by definition, offer better potential percentage upside in a market where sentiment is positive.

Gold miners apparently lost nerves when the world was promising to come to an end during the second half of 2008, but spent most of 2009 shaking off the gathered mildew, spurred on by rising gold prices, which have underpinned hugely higher gold stock prices than were quoted during the 2008 trough.

But smaller gold stocks have not yet monopolised attention. The key exception in the Tier I global gold grouping is of course Australia's Lihir being under unfriendly bid from compatriot Newcrest, which last week upped the ante by announcing the AUD 1.9bn Cadia East go-ahead. The mine is set to start producing in 2013; applying current metal prices, it would produce revenues from gold sales that would match revenues from copper sales.

Another exception in the Tier I sector comes from Barrick and Goldcorp, in the fight over Chile's El Morro. In the hands of London-listed Xstrata, El Morro was classified as a copper-gold deposit; in the disputed hands of the two gold groups, it has changed into a gold-first deposit. On 12 October 2009, Barrick announced that it agreed with Xstrata to acquire Xstrata's 70% interest in the El Morro project for USD 465m in cash.

The asset is close to Barrick's Pascua Lama, now in build, and 75%-held Cerro Casale, which is ready for build. On 7 January 2010, Canada-listed New Gold, holding 30% of El Morro, said that it had exercised a right of first refusal on El Morro. In the ensuing fracas, Goldcorp bought the 70% stake that Barrick had already bought. The matter is now in the courts.

More recently, in friendlier mood, Brett Resources has come under bid from Osisko, busy building the Malarctic mine in Canada, and no doubt in need of a fresh story that investors so crave. Underworld Resources is wanted by Kinross, a Tier I global gold stock with attractive enough cash flows, and enough time on its hands to forge new stories.

Agnico-Eagle has announced that it will acquire the shares that it does not already own in Comaplex, which has a market value of CAD 736m. The asset focus here is the Meliadine gold project in Nunavut, Canada, about 300km from Agnico-Eagle's producing Meadowbank gold mine. And in February Goldcorp spent hundreds of millions of dollar acquiring Goldplat, for the Camino Rojo project near Goldcorp's huge zinc-lead-gold-silver Peñasquito mine, in full build, in Mexico.

Gold targets in the Americas are top the pops, for now at least. Among the biggest potential gold projects, which could attract predators, may be included Donlin Creek (Alaska, a Novagold joint venture with Barrick), Las Cristinas (Crystallex, Venezuela), Metates (Mexico, Chesapeake Gold), Angostura (Colombia, Greystar), Fruta del Norte (Kinross, Ecuador), Detour (Canada, Detour Gold, Canadian Malarctic (Osisko), and Aurora (Guyana, Guyana Goldfields).

There are others within big groups, such as Chile's Cerro Casale (Barrick 75%, Kinross 25%), which could cost USD 4.2bn to build, Pascua Lama (Chile-Argentina), which Barrick now has in build mode. Another category includes explorers and developers well advanced toward potential project level, such as Exeter Resources, with its flagship gold-copper-silver Caspiche project in Chile. And of course there is Alaska's Pebble, effectively a joint venture between Northern Dynasty and Anglo American.