Gold Has Bottomed... Although Risks Remain - Cannacord Genuity

Cannacord Genuity analyst Tony Lesiak believes we've seen the bottom in Gold. The "summer capitulation phase saw both the gold price and gold equity valuations decline in tandem in heavy volume".

Even though the bottom may be in, risks remain for holders of the producers. The balance sheets of the larger producers remain somewhat stretched with Net Debt to EBITDA remaining at 1.7x in 2015 despite financing efforts and asset sales. These are the most likely to issue equity into strength. New offerings will likely come over time though, although he believes that they will hold off until share prices advance 50% or more.

Additionally Canaccord strategist, Martin Roberge, highlighted the failure of the commodity and gold equities to protect investors in the late summer volatility. This implies a shift in sentiment where gold is no longer a hedge against market turbulence and is likely to exhibit a closer relationship with the US dollar and inflation. This bodes well for the commodity as the dollar strengthens with possible Fed interest rate increases in the coming year.

Stocks that stand out as opportunities include:

Tahoe Resources (NYSE: TAHO), Buy, $17 PT.

The company has been guiding to a stronger H2 performance which would put the company well on track to achieve full year guidance of 18-21Moz. The development of Shahuindo remains on track and the company continues to expect the first gold pour in early 2016. Cash flows are anticipated to return to more normal levels with the $0.08/sh reported in Q2/15 (impacted by the Rio Alto merger) expected to improve to $0.22/sh in the current quarter. Tahoe has been added to the Focus list given the recent share price weakness and emerging catalysts.

Goldcorp (NYSE GG), Buy, $29 PT.

The company recently reconfirmed the high end of guidance (3.3 to 3.6mozs) despite the teething issues at Eleonore. Goldcorp has been one of the poorest performers among the seniors YTD. However, this could reverse into YE as long as there are no material issues with the viability of Cochenour.

Silver Wheaton (NYSE: SLW), Buy, C$27 PT.

Lesiak increased his target from C$26.50 to C$27.00 as long-term price estimates for silver increased silver increases to $17.11/oz from $16.68/oz previously, a 2.5% increase). The maximum CRA hit ($5/sh DCF value) has already been more than accounted for in the current SLW share price. This makes the CRA issue as a free embedded option that may see a decision (post the discovery process) in the next 18 to 30 months.

You May Also Be Interested In

• Wells Fargo Reiterates Overweight Rating on Tapestry Inc. (TPR)
• Azul (AZUL) Said in Talks With Gol (GOL) Shareholder for Stock-Based Deal - Bloomberg
• HSBC Upgrades Johnson & Johnson (JNJ) to Buy, 'Steady outlook, low expectations'