Goldman Sachs: Two Companies To Benefit From Higher Gold Prices
(Kitco News)- It no secret that Goldman Sachs is bullish on gold for thefirst time in five years and now the global investment firm sees two miningcompanies that are in the best position to benefit from higher prices.
In the current inflationary environment coupled with risinggold prices, investors would do well to put their money in gold stocks boastingconsistent dividend payouts and free cash flow (FCF), Goldman Sachs analystssaid in a recent report.
With this criteria in mind, the analysts at the investmentbank selected Fresnillo plc (LSE: FRES), and Centamin (TSX: CEE,LSE: CEY), as their two top gold miningstock picks.
Goldman Sachs maintained that it is important to considercompanies that are able to combat rising inflation by keeping costs low, aswell as “companies that can ramp up returns” in an environment where inflationis diminishing real returns.
“We select stocks with a solid or growing production pro?leand low costs, where those with any excess free cash ?ow that can be returnedto investors and grow dividends could be relative outperformers,” the reportsaid.
Fresnillo, a Mexico-based precious metals group, wasupgraded from “neutral” to “buy” by the Goldman Sachs; analysts gave a 12-monthtarget of 1,550 pence, revised up from 1,200 pence, compared to its currentlevel of 1,263 pence.
“We also believe that Fresnillo is on a transformationpath,” the report said. “Historically, Fresnillo’s focus has been on volumegrowth. We believe that the growth and returns will be much more balanced now,which we expect to be a positive in an environment of rising interest rates.”
Fresnillo is down 12% since releasing its full year 2017results in February, but Goldman Sachs believes the sell-off is overdone. “With[production] guidance cut, the company also reduced its capex guidance whichwould it estimates would result in US$60 [million] of additional FCF, which webelieve could eventually reach shareholders,” analysts said.
Goldman Sachs’ second pick is Centamin, a mid-tier goldproducer with assets in Egypt and C??te D'Ivoire. Analysts at Goldman Sachs heldonto their “buy” rating, with a 12-month target of 220 pence, 43% higher fromcurrent levels.
Since the company lacks growth in capital expenditure(capex) options, any excess cash flows would likely be returned toshareholders. “We believe that in a period of higher gold prices we are likelyto see stronger cash generation, which in turn implies higher investorreturns,” the report said.
Goldman Sachs also likes Randgold, Sibanye Stillwater,Polymetal and Polyus Gold.
In a report last month, analysts said that they expect goldprices to rise to $1,450 an ounce by next year, up from the bank’s previousforecasts of $1,225. Gold April futures last traded at $1,355.1, a five-weekhigh.
By David LinFor Kitco News
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dlin@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.