Broker Watch

Goldmans goes for gold with these 6 ASX initiations

Tue 04 Jul 23, 1:37pm (AEST)
Gold exploration pan in river. This was the method used to collect gold by many surface-level prospectors in the historical gold rush era in Australia
Source: iStock

Gold has been an outstanding hedge in this period of high inflation and highly variable economic data. At its peak, one ounce of gold could fetch as much as $3,000 but not before a long period of underperformance throughout 2021 and part of 2022. But although the gold price has been up and down, the ASX gold miners have been on an almighty tear. 

ASX Gold vs ASX 200

This outperformance has also more or less continued in spite of US-based Newmont Mining buying out Newcrest earlier this year. Goldman Sachs says this is largely due to an easing in cost pressures across the industry as well as greater demand for the precious metal.

On pricing, our global team see macro factors supportive for gold pricing, while hedging roll offs also support company realised pricing. Combined this drives a >A$300/oz increase in coverage average margins to FY25E.

So, where do the best opportunities still exist in this part of the market? In this article, I’ll take a look at six names that Goldmans is watching.

Evolution Mining (ASX: EVN)

Initiated at BUY with a price target of $3.80/share. Analysts say they prefer near-term margins/returns over long-term ounces in the Australian gold sector, and assets with less execution risk such as Evolution.

Gold Road Resources (ASX: GOR)

Initiated at BUY with a price target of $1.85/share. Analysts think the company is trading at a relative discount to its peers, especially given its healthy cash flow profile.

Regis Resources (ASX: RRL)

The broker believes the market has underpriced the quality of its flagship asset in far western New South Wales. Initiated a BUY with a price target of $2.30/share.

DeGrey Mining (ASX: DEG), Capricorn Metals (ASX: CMM) and Northern Star (ASX: NST) have all been initiated at NEUTRAL. The last two are also favourites of Macquarie’s sell-side team with Northern Star a clear favourite for the next stage of the market cycle.

Northern Star, Evolution Mining, and Gold Road Resources are tipped as Goldmans' top three stocks for the next five years, mainly due to increasing production and rising market share. A longer asset life and higher quality results also have an impact on valuations (obviously, the better the quality, the more you have to pay on valuation terms.)

"We expect the larger producers to have a more consistent cash cost, and hence margin profile versus their smaller peers," analysts added.

Gold vs Stocks Goldman Sachs
Source: Goldman Sachs

And one it doesn’t cover…

One gold miner not in Goldmans’ coverage is Silver Lake Resources (ASX: SLR). The company’s share price is substantially higher today after it reiterated sales and production guidance for the full year. Both Macquarie and Ord Minnett rate the stock as OUTPERFORM and BUY respectively.  

Written By

Hans Lee

Content Editor

Hans is a Content Editor at Livewire Markets and Market Index. He created Signal or Noise and helps write the LW-MI Morning Wrap on Tuesdays and Thursdays.

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