UBS lifts long-term gold price, upgrades four ASX gold stocks

UBS lifted its long-term gold price by US$500 an ounce to US$3,750 and raised price targets across its ASX gold coverage by up to 39%. While this makes for a bullish headline, the analysts admit that recent consensus upgrades have moved beyond their forecasts, and this is simply playing catch-up with the crowd.

Post-reporting season, UBS says the sector is overwhelmingly net cash, the exceptions being companies in heavier investment phases, like Ramelius, Greatland, Ora Banda and the developers. Meanwhile, capital returns were featured at names like Genesis, Regis, Perseus and Alkane, and the market responded positively to dividends and buybacks at Perseus and Newmont.

What equities are pricing

Across the coverage, ASX gold equities are being valued on a gold price of between US$3,100 and US$3,800, compared to current spot of around US$4,400. In simple terms, analysts typically assume prices run near spot in the near term before tapering to a flat long-term price. So if gold holds anywhere near US$4,400, the published targets are conservative and will get revised up.

The All Ords Gold sector rallied around 30% through August, but still looks cheap, according to UBS. The broker has its gold coverage trading on 6.2x FY27-28 EV/EBITDA, free cash flow yields of 6-8%, dividend yields of 2-4%, and upside ranging from 1% to 57%.

Rising industry costs

Cost assumptions for the gold sector (and resources in general) have moved a long way. In FY23, the market expected sector average cash costs of A$1,355/oz in FY27. The consensus estimate for the same year is now A$2,429/oz, an increase of 79%. Cost inflation and lower productivity account for A$846/oz of that, or 79% of the total increase. Volume and other factors make up the remaining A$228/oz.

Once you add in sustaining capex of A$420/oz and growth capex of A$1,084/oz, and consensus FY27 all-in cash costs reach A$3,933/oz. It ain't cheap being a gold miner.

UBS puts the increase down to four things:

• Cost inflation still running at 5-10% a year, based on FY27 company guidance and the bank's WA site visits, with contractor shortages limiting near-term relief.

• Labour turnover as high as 30% and vacancy rates up to 10% in some cases, which UBS likens to COVID-era conditions.

• Milled grades down about 50% over 25 years and 15% to 20% since FY20, as depleting asset bases push mines into lower grade ounces.

• Sustaining capital up from around A$150/oz to more than A$400/oz in FY27, with growth and expansion spending above A$1,000/oz.

So why does that matter? Rising industry costs lifts the cost curve, and a higher cost curve supports a higher long-term price as marginal ounces don't get produced below it. That said, it also means operating leverage for most miners is leaking away.

UBS coverage: Ratings and price targets

Source: UBS

And here's what they've got to say about each name.

• Alkane (ALK): Upgraded to Buy on the returns story within existing operations and a new capital management framework, despite little volume growth relative to peers.

• Bellevue (BGL): Has rebuilt operational credibility after repeated ramp-up downgrades. Attention turns to what comes next once $100m of debt and the legacy hedge book roll off in 12 to 18 months. Exploration updates could add from here.

• Capricorn (CMM): July's Range 500 strategy was incrementally positive to forecasts, with higher underground volumes and a possible plant at the Golden Range project north of Mt Gibson. One of the better growth profiles in the coverage.

• Catalyst (CYL): Top small-to-mid cap pick. September's ten-year plan should detail mill expansions and Cinnamon upside. UBS forecasts the top of the consensus range on volumes from FY29 at more than 210kozpa, and sees upside to its 2.5g/t grade assumption against reserve and resource grades of 3.1g/t and 2.6g/t.

• Evolution (EVN): Around 25% copper exposure makes it less sensitive to the gold price. UBS models upside at Northparkes and Cowal ahead of the mid-September site visits, but the stock trades in line with its 1.1x NPV-based target, so Neutral stands.

• Genesis Minerals (GMD): The Vault Minerals deal completion is the material catalyst. On a pro forma basis UBS thinks production can exceed 700kozpa from the core Laverton and Leonora operations, via a Laverton expansion and Tower Hill.

• Greatland (GGP): Now owns 100% of Telfer and Havieron. UBS has it becoming a 500kozpa-plus producer from FY33 at some of the lowest AISC in the sector.

• Newmont (NEM): Preferred large cap. The Nevada Gold Mines resolution is read as a positive catalyst, allowing operational improvement at the JV while cash keeps flowing back to shareholders.

• Northern Star (NST): Upgraded on long-dated turnaround value. The new CEO starts next month. UBS expects the turnaround to take time but sees value in the core portfolio of KCGM, Hemi and Pogo.

• Ora Banda (OBM): Upgraded to Buy, with the Davyhurst expansion progressing under the Drive to 300 plan. Catalysts are a maiden Little Gem resource in the December half of 2026 and a Round Dam FID in the June half of 2027.

• Pantoro (PNR): Operationally challenged, with weak FY27 guidance after FY26 underperformance. UBS thinks the base has been reset and that a contractor change-out can lift mining productivity. Cheapest in the coverage on financial and in-situ gold metrics, with an updated five-year plan due this month.

• Perseus (PRU): Nyanzaga first ore in January 2027 accounts for about 35% of UBS's NPV. Inventory growth at Sissingué and Edikan added mine life. After Nyanzaga commissioning the company needs a new growth leg, having divested Meyas Sand in Sudan.

• Ramelius (RMS): UBS is above both consensus and company estimates on production and costs ahead of this month's four-year plan. Capital returns are constrained for two to three years through construction, including a Rebecca Roe FID. Sees upside to 525koz FY30 guidance.

• Regis (RRL): Upgraded to Neutral but still least favoured. Duketon margins are compressing on age, mine development and grade. UBS expects it to stay active on M&A ahead of potential McPhillamys spending, and doesn't think FY27 returns are sustainable once growth investment resumes.

• Westgold (WGX): UBS thinks group milling capacity can reach 9.5Mtpa across two hubs, supporting 650kozpa in FY30, well ahead of consensus. Updated three-year guidance due early September.

What about valuations?

Source: UBS

At a glance, Capricorn is the most expensive stock in the coverage and still a preferred name. At 10.6x FY27 it's double the producer average of 5.3x, with a 0.5% free cash flow yield. It then falls to 7.3x and 5.4x. You're paying up front for the Mt Gibson ramp and Range 500, and the cash is going into the ground in the meantime.

Free cash flow yields are volatile, with a name like Westgold printing 13.3% in FY27, falling to 2.6% in FY28 and back up to 11.3% in FY29. Regis also dips from 9.1% to 2.5%, then minus 2.0%. UBS says outright that Regis FY27 returns are unlikely to be sustainable once it invests to hold production. Vault and Bellevue are the only producers with double-digit yields in all three years.

The bottom line: Thematically, there's a lot to like about gold right now. US total public debt crossed US$40 trillion for the first time on 18 August, more than double the US$19.9 trillion of just nine years ago. You've also got widening budget deficits across most of the developed world, still-elevated inflation and central bank buying. The People's Bank of China picked up 650,000 ounces in August, its 22nd straight month of purchases and its largest monthly addition since 2023. But after an extraordinary run, gold is down around 20% from January record highs. The recent volatility has been enough to send gold miners ping-ponging 10-20% in a matter of days. But if you can stomach the volatility, and believe gold can hold at current levels, UBS reckons its a decent entry point.