Line: Despite the recent pull back we expect the gold miners and royalty/
streaming companies to post record operating cash flow and improving net cash
positions. Most of our estimates are in line with consensus; exceptions include a
potential beat by THO, potential misses by GG, DGC and SLW.
Key Points
• Buy the Pull Back - As we noted in our Q4/16 update, we see a pullback in many
of the stocks under coverage through the US election period and leading up to a
potential December Fed rate hike as an opportunity to reload.
• Valuations Appear More Attractive - 2017E P/CF multiples have contracted on
average 15% for the large, 27% for the medium and 11% for the royalty/streaming
companies representing more attractive entry points versus recent peak multiples.
• Estimates are Broadly in Line - Our expectations for Q3 are broadly in line with
consensus; however, there are a number of notable exceptions. The gold sector looks
to maintain the pace of free cash flow generation. We forecast $1.0B ($1.8B excluding
the SLW Salobo acquisition).
• Look for THO to Beat - We expect THO to beat on the quarter driven by continued
strong performance at Escobal and on silver price.
• GG, DGC and SLW Could Miss - Relative to consensus; GG on the impact of ongoing
restructuring, DGC on weaker-than-expected Q3/16 production results, and SLW on
lower stream revenue.