Peel Hunt Metals & Mining 02nd March 20203 Mar 2020 15:56
(REF: Mr Tibbles - CEY BB)
Peel Hunt Metals & Mining 02nd March 2020
Yields support gold amid a viral storm
Recent expectations of further interest rate cuts supporting the gold price have been driven by evidence that COVID-19 is on
the verge of being a pandemic. We now forecast gold atpEE US$1,700/oz in 2020 and expect support to persist, with upside
potential should the outbreak worsen and drive real interest rates further into negative territory. Pan African# and Serabi# look to offer the best upside in these scenarios, while Centamin looks close to fair value even in this higher gold price environment.
Increasing our gold price forecast to US$1,700/oz in 2020
Just six months back in August we revised up our gold price deck as spot gold crossed US$1,500/oz and looked well supported. However, with gold having come close to the US$1,700/oz mark last week (vs our US$1,525/oz forecast for
H1 2020), we have increased our 2020 gold price forecast to US$1,700/oz to give investors a better feel for the cash flows we now expect in 2020.
Elevated gold price justified by negative yields and growth concerns
With continued gold ETF purchases into 2020 driven by falling yields and further growth concerns, we now see continued support for the gold price through mid-2020. Our US$1,700/oz gold forecast for this year is driven by our
belief of two Fed cuts and 1.4% inflation. The economic consensus of no cuts and 2% inflation would support gold over the US$1,600/oz level.
EBITDA upgrades drive elevated cash flows through mid-2020
We expect to see a round of estimate upgrades as strong gold prices drive increased cash flows through H2 2020. We forecast average 2020 EBITDA upgrades of 28%, with an average margin of 49% by H2 2020 (ex-POG). This
drives even stronger bottom-line 2020 EPS upgrades, which average 49%.
Target prices up 20% on average, PAF and SRB offer the greatest upside
We have today lowered our rating on POG to Add from Buy, but maintain our ratings on all the other stocks. Our average target price increase is 20% over the coming 12 months. While POG has the greatest upside value leverage to gold,
HOC has the lowest due to its silver exposure. SRB and PAF have the greatest upside to the new target prices at 70% and 57% respectively.
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