macquarie lgl liquid pure gold investment

Macquarie: LGL - Liquid, Pure Gold Investment Vehicle
6/07/2007 By: LGL, NEM

Macquarie: LGL - Liquid, Pure Gold Investment Vehicle

Overnight, in a move seen as bullish for the price of gold, Newmont Mining Corp (NEM) said it eliminated its 1.85 million-ounce gold hedge position. Market watchers have said that Newmont's decision to eliminate hedging was "crucial" to the gold market, and a real "vote of confidence" for the outlook for the gold market.

Recently, Macquarie Research Equities (MRE) increased their gold price target to $720/oz in 2008, some 10% upside to where gold is at present. Of the top Aussie gold producers, MRE have a clear preference for Lihir Gold (LGL). In fact, On MRE’s numbers, a 10% increase in the gold price will result in a 19% earnings upside for LGL due to its unhedged gold book.

Recently, Macquarie Research Equities (MRE) outlined why they’ve upped their gold price to $720/oz in 2008 (peaking in 4Q08 at US$745/oz). In MRE’s view, there are five key reasons to be buying gold TODAY!

1) A muted supply response to higher prices
2) Lower-than-expected central bank sales
3) Speculators’ aversion to aggressively shorting gold in a post 9/11 world
4) Continued producer dehedging (just like what we've seen from Newmont) , and
5) Likely continued pressure on the USD

Lihir Gold (LGL) is Macquarie's preferred gold exposure, presenting investors with an "ungeared, unhedged gold investment vehicle". Macquarie prefer Lihir Gold (LGL) over Newcrest Mining (NCM) because of LGL’s….

1) Increasing production growth profile, and now completely unhedged to future gold price movements after recently buying back its hedge book
2) LGL is now in the top cost-quartile for gold extraction globally (geothermal power initiatives have helped to achieve this)
3) A bullish outlook for gold.
4) Better leverage to gold price movements versus Newcrest (NCM) - for a 10% increase in the gold price, LGL and NCM deliver 19% and 5% earnings upside respectively.

Given MRE’s positive outlook for gold, and given the relatively stronger run of some of its base metals peers, MRE believe the gold sector is positioned to outperform with a 12-month outlook relative to the broader market.