TORONTO (miningweekly.com) – A theme that kept cropping up at the Toronto Resource Investment Conference this week is the expectation that gold stocks are about to shoot through the roof.
Speaking on Friday, Sprott Private Wealth CEO David Franklin said he expects the biggest North American companies to see a 20% rise in their share prices by January, as the impact of higher bullion prices eventually takes hold.
He pointed to a recent RBC Capital study that showed gold miners will, assuming the metal’s price stays at $1 800/oz, generate more cash flow in the next two years than they have over the past decade.
The price of the yellow metal dipped below $1 800/oz on Thursday before springing back to trade at $1 811/oz the next day.
“For gold stocks, expect a 20% return from now to January. That’s my target,” said Franklin.
His views will be welcomed by gold bugs around the world as they flock to the yearly Denver Gold Forum, starting September 18.
His views echoed comments made by Aaron Regent, CEO of the world leading gold miner Barrick, back in August, when he said that analysts had consistently underestimated the performance of gold, and would have to change their conservative long-term price forecasts as high prices are sustained.
Days after Regent made the remarks, UBS raised its gold price targets, and Canada’s TD Securities did not take long to follow.
The share prices of gold companies have lagged the soaring bullion price, despite the prospect of big profits, making them cheap, said Franklin.
“These aren’t just cheap gold stocks, these are cheap stocks. Can you name me a sector that is going to generate as much cash flow in the next two years as it did in ten years?” he put forward.
Franklin was not as sweet on juniors in the sector though, which he said can print equity faster than central banks can print money. This “huge amount” of dilution is likely what has been depressing share prices among these companies, he said.
One thing that could help gold companies perform better on the equities markets was upping the ante when it came to dividends, commented Franklin.
While the second-biggest producer, Newmont, earlier this year pegged its dividend yield to the price of bullion, other companies have not been overly generous in returning cash to shareholders, as they grapple with big hikes in capital and operating costs.
Pricey acquisitions have also sucked up some excess cash.
“Dividends are the last thing on the list of what the gold majors aim to do with the cash they generate, after share buy backs,” Franklin said.
“However, if the gold miners paid bigger dividends, they would open themselves up to 'a whole new set of investors' that are looking for yields.”
Gold Anti-Trust Action Committee chairman Bill Murphy added his voice to the list of presenters saying gold stocks are going to take off.
“When this goes, we’re talking about 1 000%” gains for some companies, he said.
“It’s going to be very exciting, and it's coming soon.”
On Thursday, Sprott Asset Management CEO Eric Sprott said gold could rise to $2 500/oz next year, and Murphy was slightly more bullish, predicting a price of $2 600/oz to $2 700/oz.