A is for Au
In its Gold Sector Review for July, international financial house Ambrian Partners couldn’t get past the first letter of the alphabet for its top gold companies for the year.
“Adamus, Ampella and Avocet are our top picks this year,” Ambiran Partners said.
“We think that all three companies offer value at their current prices.
“All have presented clear and defined plans as to how they will achieve their goals this year and we expect that further development of their respective assets throughout the second half of 2011 will drive their market valuations higher.”
Ambrian provided a small snapshot of each company.
First cab off the rank in the report was Adamus Resources.
Adamus has commenced production at its Nzema gold project in Ghana to become the newest gold producer in the world-class Ashanti Gold Belt.
Ambrian said an expected consolidation of the West African gold sector will result in Adamus having a central role as it is producing and holds a substantial and prospective gold package in the region.
Still in West Africa Ampella Mining is, according to Ambrian, “One of the most exciting West African gold exploration stories on the ASX”.
The company has a resource of 2.2 million ounces gold, which Ambrian said it expects to see upgraded before the end of this year.
Ambrian’s third top tip is Avocet Mining as it considers the company to continue delivering on a number of fronts.
“It has continued to meet its production targets, while also keeping the drill rigs running ‘hot’ on its properties in Burkina Faso and Guinea,” Ambrian said.
“During the first half of the year Avocet has sold its high cost South East Asian assets and is now fully focused on growing West African production.
“We maintain our belief that Avocet is on the way to becoming a 500,000 ounce gold producer.”
Ambrian has based its assessments on the first half of 2011 where the market has been subjected to record high US dollar gold prices on the back of a ‘perfect storm’ of a weakening US dollar.
Other contributing factors include the weakness in the Eurozone and inflationary pressures from China.
“Despite record high US dollar gold prices, gold-focused mining equities were flat over the first half of 2011,” Ambrian said.
The firm identified three main areas it believes to be the main reasons for the underperformance of gold equities:
– The weakness of the US dollar, which has contributed to the offset of profits producers operating outside of a US dollar-denominated currency would have made.
“Investors are aware of this and have not followed gold spot prices up when companies are not fully exposed to the US dollar,” Ambrian said.
– Political instability in gold exploring/producing countries, which actually has a limited effect on the companies operating/exploring in those countries, has driven share prices lower.
“This instability (or perceived instability) is not only limited to companies that have projects in countries that have experienced revolutions or wars, but is also present in countries where the government has signaled a review of taxation policies or royalty rates,” Ambrian said.
– General risk aversion in equity markets that has resulted in investors preferring to put money away in what they perceive to be more stable investments; for example, investing in gold Exchange Traded Funds rather than equities that are historically perceived to hold risks from market fluctuations and individual company risk.
“In an assessment of those gold equities that we feel will perform best in 2H11, we maintain our belief that those stocks that continue to grow their profile whilst keeping the market updated with a positive newsflow will continue to prosper,” Ambrian said.
The report also looked beyond the top three companies mentioned providing a comprehensive view of 15 other companies stretching way into the rest of the alphabet.