Gold stocks

Caliente said:

whats the technical name for that curve you drew on the Tanami graph?

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chicken said:

I checked www.kitcometals.com and GOLD was up US$10 to $443....US....looking at what everyone is saying...all gone long in gold futures

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loakglen said:

Could this be the beginning of the end for the US economy?

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More Resources Mergers On The Horizon?
November 10 2005 - Australasian Investment Review – (AIR)

The ranks of major Australian resource companies have been thinned by takeover in recent years (think MIM Holdings and WMC Resources), and if recent developments in the global gold sector are any indication the numbers may soon decline further.

Barrick has launched a takeover offer for Placer Dome, a move that would create the largest gold mining company in the world, replacing Newmont in the top position.

As both GSJB Were and ABN Amro Morgans note, the takeover offer continues the consolidation among global gold miners, which has been driven by an inability to find new resources and reserves to replace production.
As UBS notes, takeovers have become the easiest way to increase reserves, with Australian stocks among the most attractive given their relatively low costs of production and stable political environment.

The broker suggests this is in contrast to gold companies in South Africa, where there are far more complications given issues such as black empowerment and high production costs, as well as a less favourable currency.

Weres notes the two largest Australian producers, Lihir Gold (LHG) and in particular Newcrest Mining (NCM), both offer large scale, long life assets, which are particularly attractive to the current global gold majors.
The broker estimates Newcrest is on track to lift production from its current 1moz annually to about 1.8moz annually over the next two years, while cash costs should continue to be below US$200/oz.

Also, the broker points out the stock is the most attractive in global terms on the basis of cash margins and life of reserves.

Similarly Lihir is set to increase this year’s production of about 500koz to around 700koz next year, while potential remains to hit the 1moz mark in the next three to four years.

Additionally, as UBS notes Rio Tinto (RIO) has stated its 14% stake in Lihir is a non-core holding, so any potential bidder would have a good starting point if it were to acquire such a stake.
In the broker’s view Lihir is also less likely to attract a counter offer than would be Newcrest.

Adding the production of either company to its annual output would allow Newmont to resume its place as the largest global producer, so making it a potential buyer of assets in the Australian sector.

Another contender is AngloGold Ashanti, as ABN Amro notes the decision by AngloGold to allow its shareholding to be diluted below 50% frees AngloGold Ashanti to use scrip as part of a takeover offer, making corporate transactions more likely.

The question then becomes at what price would a bid be made, and when is it likely to come?

In terms of timing, with both companies currently experiencing some production difficulties an immediate bid is unlikely.

As UBS points out, any potential buyer for Newcrest is more likely to wait for Telfer to achieve full production rates given the ongoing technical problems at the mine, while the company’s hedging position may also warrant further analysis.

Similarly Lihir has seen production curtailed recently by a landslide, with Weres noting the incident adds to its history of suboptimal production, so evidence of improvement would be a significantly reassuring factor.
On valuation grounds, the broker suggests the key variable is the Weighted Average Cost of Capital (WACC) of the acquirer, as this is the determinant of the value the company can derive from the assets it is buying.
The broker calculates using a 6% WACC, which is above that applied to US stocks, its valuation of Newcrest would increase to $16.50 from $9.40, while for Lihir it would increase to $1.44 from $1.15.

In the broker’s view then a North American producer could afford to pay more than $30.00/share for Newcrest and more than $2.90/share for Lihir, as these prices would represent a similar multiple to the current Barrick bid for Placer Dome, which is priced on 2.1x net present value (NPV).

UBS uses a slightly different NPV in its forecasts but is similarly optimistic, calculating the Barrick bid is pitched at about 3x NPV, which translates to a price for Newcrest of about $28.00/share and Lihir of about $3.50/share.
Focussing on Newcrest, ABN suggests depending on who made the offer and how it was financed, a bid could be value and earnings accretive at between $24.00-$30.00/share.

The broker suggests a price between $21.00-$25.00/share would make the bid earnings accretive for Barrick, Newmont and AngloGold Ashanti now, with this increasing to $27.00-$28.00/share when Telfer reaches full capacity.

http://www.aireview.com/

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