Big praise for B2Gold's Namibia mine
After underperforming the S&P 500 by 21% since September 2013, gold and silver equities now appear more fairly valued, believes Goldman Sachs.
According to a new research note from the investment firm that stock in the sector have benefited from more responsible capital allocation, successful cost cutting initiatives and a refocus on maximizing free cash flow.
Goldman Sachs now has a more positive view of gold stocks than that of the underlying commodity. Its forecast is for gold at a price of $1,050 an ounce at the end of the year; a call it recently reiterated.
Goldman also upgraded B2Gold (TSE:BTG) to a buy, seeing upside for the company thanks to "imminent production growth" from the Otjikoto project in Namibia which should help fund future projects.
The Vancouver-based gold miner saw it share price rise 1% on the Toronto big board to just under $3 on Tuesday, bringing year-to-date gains to 38%. Goldman's price target of $4.20 suggests lots more buying still to come.
According to B2Gold's January 2013 feasibility study Otjikoto could support an open pit gold mine with a 12-year mine life, with average annual production during the first five years of 141,000 oz of gold per annum with an average operating cost of $524 per ounce.
Over the entire life of the mine production is expected to average out to 112,000 oz per annum, with an operating cost of $689 per ounce. Construction should be complete by the 4th quarter and full-scale production is set for early 2015.
The company with a stock market valuation of just over $2 billion also operates mines in Nicaragua and the Philippines and owns projects in Colombia and Burkina Faso.
B2Gold was formed in 2007 by former execs of Bema Gold when the latter was acquired by fellow Canadian miner Kinross for $3.5 billion.
Goldman also upgraded Barrick Gold (TSE:ABX) to buy, giving the world's top gold producer kudos for improving its "financial flexibility" through divesting of non-strategic assets and focusing on cash-flow generating possibilities.
Toronto-based Barrick was last trading up 1.85% on the TSX despite the softer gold price. The $20.5 billion counter is flat for 2014.
Goldman maintained buy recommendations on Goldcorp, Inc. (NYSE:GG), Yamana Gold (NYSE:AUY; TSE:YRI) and streaming company Silver Wheaton (NYSE:SLW), but recommended investors get out of Iamgold (NYSE:IAG; TSE:IMG)), PAN American Silver (NASDAQ: PAAS) and Eldorado Gold (NYSE:EGO; TSE:ELD).
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