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Number Cruncher
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Mid-sized gold producers, outsized price gains


DAVID PARKINSON

From Thursday's Globe and Mail




What are we looking for?

We’re continuing this week’s theme of looking behind the numbers of global gold equities, with the help of David Haughton, precious metals analyst with BMO Nesbitt Burns. Today, we look at the intermediate-sized gold producers.

Rising in the middle

While the large-cap segment of the gold equity marketplace has generally lagged behind the price of gold bullion as it has rallied to record prices north of $1,300 (U.S.) an ounce this year, the mid-sized segment has proven more responsive to the price gains, Mr. Haughton said.

The intermediates have captured a lot of the price momentum, because that’s where the growth is,” he said.

Investors looking to capitalize on bullion’s rally have favoured companies with strong growth profiles because it means they will capture ever-rising benefits from the record commodity prices as their production increases. The highly profitable price for gold also strengthens the case for increasing production – providing motivation for growing intermediates to ramp up their expansion plans and perhaps deliver on their growth potential earlier than the market would otherwise have anticipated.

Little surprise, then, that, as Mr. Haughton put it, “The market is biased toward growth.”

Less upside

But while that thinking has propelled strong gains in the intermediates, it has also left them looking expensive relative to the senior gold miners.

The intermediate group’s price-to-cash-flow, price-to-earnings and enterprise-value-to-EBITDA multiples are all roughly 20 per cent higher than those for the senior producers (which we highlighted in Wednesday’s column) – and the premium for the intermediates is even bigger when we’re talking about 2010 numbers.

These relatively high valuations probably explain why fewer than one-third of the intermediates have an “outperform” rating from BMO’s analysts – compared with almost half of the stocks in the senior segment. In general, their strong gains have left them more expensive, and with less upside potential.


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INTERMEDIATE GOLD PRODUCERS
Company Ticker Country Price
(local currency,
Oct. 8)
BMO
Rating
Price to
Net Present
Value*
P/E
2010 est.
P/E
2011 est.
EV/EBITDA
2010 est.
EV/EBITDA
2011 est.
Price to
Cash Flow
(2011 est.)
Dividend
yield
African Barrick Gold ABG UK 6.08 Market perform 148% 14.7 10.9 7.2 5.1 8.2 0.4%
Alamos Gold

AGI-T Canada 16.94 Outperform 178% 26.8 21.3 14.0 11.6 17.1 0.4%

Aurizon Mines

ARZ-T Canada 6.97 Market perform 185% 46.3 11.7 14.1 7.1 8.1 0.0%
Centerra Gold CG-T Canada 17.32 Market perform 173% 14.8 12.9 10.0 8.1 10.0 0.3%
Eldorado Gold ELD-T Canada 18.78 Market perform 307% 45.8 27.3 23.6 13.7 19.7 0.3%

Franco Nevada
FNV-T Canada 33.82 Outperform 194% 50.0 47.3 20.1 16.0 22.3 0.9%

Gammon Gold
GAM-T Canada 7.20 Market perform 147% 23.6 11.8 8.4 4.9 7.6 0.0%
Golden Star
GSS-A US 5.04 Outperform 168% 32.3 12.6 6.6 3.8 6.0 0.0%

Iamgold
IAG-N US 17.57 Market perform 169% 21.5 13.7 10.7 6.9 10.1 0.3%
Kingsgate KCN Australia 11.95 Market perform 126% 17.0 15.0 11.4 10.8 13.3 2.6%
Mineral Deposits MDM-T Canada 1.06 Market perform 165% 47.9 50.0 11.8 12.3 13.9 0.0%

New Gold
NGD-T Canada 7.04 Outperform 171% 27.0 18.5 11.7 9.0 12.7 0.0%

Petropavlovsk
POG UK 10.16 Market perform 114% 14.2 7.7 7.5 4.4 6.1 1.0%
Randgold Resources GOLD-Q US 103.41 Outperform 236% 50.0 22.4 30.0 12.0 18.8 0.2%

Resolute Mining
RSG Australia 1.38 Market perform 107% 50.0 8.1 7.6 3.3 4.4 0.0%
Semafo SMF-T Canada 10.50 Market perform 332% 27.3 20.0 14.9 10.9 14.8 0.0%












Averages



214% 35.0 21.2 17.5 10.2 12.7 0.4%













Source: BMO Nesbitt Burns *based on NPV at 10% discount rate and a long-term gold price assumption of $1,000 (U.S.) an ounce


The Globe and Mail


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http://www.stockhouse.com/charts/BasicChart.aspx?sd=10/14/2009&ed=10/14/2010&ticker=T.AGI&t=0&w=384&h=280&sl=0&i=0


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http://www.stockhouse.com/charts/BasicChart.aspx?sd=10/14/2009&ed=10/14/2010&ticker=T.ARZ&t=0&w=384&h=280&sl=0&i=0


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http://www.stockhouse.com/charts/BasicChart.aspx?sd=10/14/2009&ed=10/14/2010&ticker=T.CG&t=0&w=384&h=280&sl=0&i=0


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http://www.stockhouse.com/charts/BasicChart.aspx?sd=10/14/2009&ed=10/14/2010&ticker=T.ELD&t=0&w=384&h=280&sl=0&i=0


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http://www.stockhouse.com/charts/BasicChart.aspx?sd=10/14/2009&ed=10/14/2010&ticker=T.FNV&t=0&w=384&h=280&sl=0&i=0


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http://www.stockhouse.com/charts/BasicChart.aspx?sd=10/14/2009&ed=10/14/2010&ticker=T.GAM&t=0&w=384&h=280&sl=0&i=0


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http://www.stockhouse.com/charts/BasicChart.aspx?sd=10/14/2009&ed=10/14/2010&ticker=IAG&t=0&w=384&h=280&sl=0&i=0


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http://www.stockhouse.com/charts/BasicChart.aspx?sd=10/14/2009&ed=10/14/2010&ticker=T.MDM&t=0&w=384&h=280&sl=0&i=0


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http://www.stockhouse.com/charts/BasicChart.aspx?sd=10/14/2009&ed=10/14/2010&ticker=T.NGD&t=0&w=384&h=280&sl=0&i=0


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http://www.stockhouse.com/charts/BasicChart.aspx?sd=10/14/2009&ed=10/14/2010&ticker=T.SMF&t=0&w=384&h=280&sl=0&i=0



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