Barry FitzGerald: Aussie gold miners still screen as “cheap”, Bell Potter says

“Garimpeiro” columnist Barry FitzGerald has covered the resources industry for 35 years. Now he’s sharing the benefits of his experience with Stockhead readers.

Aussie gold stocks have been running hard in response to the yellow metal reaching record levels. But not hard enough according to Bell Potter analyst David Coates.

Writing in the latest edition of Bell’s Gold Tracker, which he puts together, Coates said he had noticed over the last couple of months that a “disconnect” had emerged between ASX-listed producers and their North American peers.

According to Coates, it is a significant departure from historic trading patterns.

“Looking back, the only disconnect in the last 10 years is the two-way volatility (which quickly reverted) at the onset of the COVID pandemic.”

Coates said he had not been able to identify any causes unique to ASX-listed gold producers that would explain why the disconnect should be sustained.

“A possible catalyst is the release of FY26 production and cost guidance across the sector being below market expectations, but higher costs and soft production growth are also seen in key North American stocks, both now and within the 5-year timeframe of our chart,’’ Coates said.

“We also don’t see that exchange rate differentials, concerns around capital allocation, jurisdiction exposures, tax-loss selling on the ASX or increasing labour and power costs provide a fundamental or sustainable justification for this underperformance.”

What does it mean?

Let all that sink in and there are two key implications – ASX gold stocks have some catching up to do and the groundwork has been laid for overseas gold groups to start picking off their “cheap” Aussie peers in merger and acquisition activity.

Gold’s march to record levels underpins both implications. Like other analysts covering the sector, Coates has upgraded his gold price expectations which is another reason for Aussie gold stocks to have momentum to the upside.

Coates has increased his gold price forecast for the current half year by 19% from $US2950/oz to $US3500/oz. His forecast for the June half next year is for $US3600/oz gold, up from $US2800/oz forecast previously.

“It now has a strong foundation for further upside and is not looking too extended versus key moving averages,” Coates said.

“We are also encouraged by positive sentiment indicators, including the outperformance of silver and the increase in gold ETF holdings.

“A further emerging driver is the perception of increased risk around the potential for a stagflationary environment – in which gold historically outperforms all other asset classes.”

Price targets jacked up

Applying the higher gold price assumptions and the call that Aussie gold stocks have underperformed their North American peers led to Coates to pin substantially higher share price targets (producers) and valuations (explorers/developers) on stocks he covers.

Only one, Pantoro, copped a hit to its recommendation.

• Capricorn Metals (ASX:CMM) – Upgraded from a Hold to Buy, with the target price increased by 22% from $10.80 to $13.10. It was trading on Thursday at $11.62.
• Evolution Mining (ASX:EVN) – Upgraded from Hold to Buy, with the target price increased by 29%, from $8.15 to $10.55. Trading on Thursday at $9.57.
• Pantoro (ASX:PNR) – Downgraded from Hold to Sell, with target price increased by 40% from $3.15 to $4.40. Trading on Thursday at $5.02.
• Regis Resources (ASX:RRL) – Upgraded from Hold to Buy, with target price increased by 29% from $4.90 to $6.30. Trading on Thursday at $5.43.
• Ballard Mining (ASX:BM1) – Maintained at Speculative Buy, with its valuation increased by 23% from $0.65 to $0.80c. Trading on Thursday at 43.5c.
• Minerals 260 (ASX:MI6) – Maintained at Speculative Buy, with its valuation increased by 21%, from $0.28c to $0.34c. Trading on Thursday at 16.5c.
• Santana Minerals (ASX:SMI) – Maintained at Speculative Buy, with its valuation increased by 19% from $1.18/ to $1.40. Trading on Thursday at 78c.

At Stockhead, we tell it like it is. While Ballard Mining is a Stockhead advertiser, it did not sponsor this article.