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Gold stock prices shoot up towards the stars

Prices for twenty selected gold stocks have risen by nearly 500%, on average, in the past four months.

Author: Barry Sergeant
Posted: Monday , 02 Mar 2009

JOHANNESBURG -

While the MSCI Barra dollar index for global equities has fallen 55% from its highs, seen in October 2007, and is busy scraping new lows, 20 selected gold stocks have risen by nearly 500%, on average, since lows seen four months ago. This set of gold stocks is also some 55% below highs seen earlier in 2008, but investors with foresight, or luck, or both, who switched into these and many other gold names, would have scored heavily.

For comparison, the world's top 100 miners by value have risen 60% from low prices, but sit 67% below high prices. The value of listed gold stocks is underpinned by strong dollar gold bullion prices, which were recently looking to test the all time record level of just above $1,000 posted during March 2008. Seen on a comparative and relative basis, gold stocks currently rank as the world's best-performing wider equities sub-sector, with an aggregate market capitalisation, or value, of more than $220bn.

Listed silver stocks are outperforming gold stocks, as a matter of record, but the capitalisation of primary silver producers is a lot lighter, at $11.8bn. The performance of the sector is quite heavily weighted towards Fresnillo, the world's biggest primary silver miner, and where the London stock price performance shows an increase of 270% from recent lows, for a current market value of $3.5bn.

While smaller capitalisation stocks tend to outperform in a bull market, and underperform in a bear market, the world's top 20 performing gold stocks include a number of bigger names, led by JSC Polymetal, with a market value of $1.9bn, which may be considered a Tier II gold producer. JSC Polymetal mined 17.2m ounces of silver and 285,000 ounces of gold at its operations across Russia during 2008. Like so many other Russian stocks, JSC Polymetal's stock price was especially savaged during the latter parts of 2008, leaving it with a big platform for price recovery. While the price for JSC Polymetal has increased nearly 500%, the price for Russia's Polyus, the precious metals spinoff from Norilsk, the world's biggest nickel miner, has increased 143% from lows.

La Mancha Resources ranks as one of the best-performing gold stocks, and stocks, in the world, with a price increase of more than 1,000%, providing it with a current market value of $55m. The company, which operates mines in Australia, Côte d'Ivoire, and Sudan, was spun off just under three years ago from Areva, which ranks at the world's No 3 uranium miner, after Cameco, and Rio Tinto. Two weeks ago, La Mancha announced the go ahead for its White Foil mine in Australia; La Mancha now anticipates group production of between 85,000 and 100,000 ounces of gold in 2009, an increase of up to 40% over 2008, at an average cash cost of $497/oz.

Central Sun Mining, which focuses on Nicaragua, has seen an increase of more than 800% in its stock price. Here, however, there is some corporate activity. Central Sun is busy undergoing a business combination with B2Gold, which is offering 1.28 of its shares for each share in Central Sun, valuing Central Sun at about $40m in the current environment, about $3m more than its market value. The stock price for B2Gold, which holds several exploration projects in Colombia, and the far north east of Russia, has come off strongly in recent weeks, as the excitement of the combination fades.

Azteca Gold also ranks as one of the world's top performing stocks, with a rise from lows of more than 600%. The company markets itself as "an aggressive gold and silver exploration company", with a focus on making new discoveries in past producing districts located in miner-friendly locations: Idaho, Nevada, Alaska, and Mexico.

Two other gold stocks have risen by more than 500% from recent lows, in the form of Novagold (market value: $525m), and Coral Gold (market value: $14m). Novagold and Barrick, the world's biggest gold miner, each own 50% in Alaska's Donlin Creek, one of the world's biggest gold fields, with a resource base of nearly 30m ounces of gold. Coral Gold is focused on the Cortez trend in Nevada.