miners tipped to boom in 2012 gold rally

Miners tipped to boom in 2012 gold rally

Published 5:26 PM, 4 Jan 2012 Last update 5:26 PM, 4 Jan 2012

After a rocky year that has wiped 15 per cent of Australian shares, gold miners are looking like an attractive bet for 2012, analysts say.

The yellow metal was among the best performing commodities last year, not only finishing the year 28 per cent higher than it started but also posting a higher average price than in 2010.

And after a slump in recent months that briefly saw gold enter a bear market - losing 20 per cent over two months - analysts are now firmly bullish on the outlook for 2012.

"We expect prices to extend higher in response to ongoing worries about Europe and inflationary pressures in emerging markets," ANZ Bank said.

A Bloomberg survey of 18 analysts found that the median price forecast for gold in the first quarter of 2012 was $US1,790 an ounce, rising to $US1,937 by the fourth quarter.

Several expect it to break $US2,000 next year, with one even forecasting the record high will come before June.

With the shine back on bullion's rally, gold mining stocks are now a great bargain investment, according to Lime Street Capital mining analyst Andrew McLeod.

"Gold stocks have vastly underperformed gold (prices) as a metal so there are a lot of companies out there who are in good buying territory," he said.

"We see the recent fall as just a technical correction and a great chance to get exposure to gold."

Mr McLeod likes Silverlake and Resolute Mining as longer-term investments that will benefit from a year of sustained high prices.

To be sure, mining share have underperformed in 2011. Newcrest, Australia's biggest gold miner, lost about a quarter of its value last year, while BHP and Rio Tinto lost even more.

Some forecasters argue that gold's rally has had its day as any pick up in risk appetite means investors will leave it for other asset classes.

"When risky assets turn ... you really do not want to be the last person holding gold," said HSBC in a report.

Certainly the higher cost miners, such as Norton Gold and Tanami Gold, which both extract gold at a cost of more than $US1,000 an ounce, remain risky bets when prices are so volatile.

But for other analysts, miners' poor share prices performance in 2011 leaves more potential upside this year.

Macquarie kept its outperform rating on Newcrest - despite the company downgrading its production guidance by nine per cent because of production disruptions - arguing that the "inherent value across the entire portfolio is not being truly reflected in the current price."

For RBS Morgans analyst James Wilson, the key is to invest in low-cost production companies that will remain resilient to market turbulence but still offer high returns as the gold price rises.

He likes "bulletproof" Regis Resources, Silverlake and Saracen Minerals as producers with low costs, and explorers Gryphon and Ampella Mining.

"People like Newcrest as good company that issued dividends but in terms of growth of share price (it's) hard to deliver growth prospects that will have substantial leverage to the gold price," he said.


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I like GRY,AMX,NCM and SLR at current levels.