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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

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Wednesday, December 23, 2009

Goldman Rates Gold Fields & Harmony Gold as "Buys"

South African-based gold miner Harmony Gold ($HMY) has been upgraded by Goldman Sachs ($GS) from a "Neutral" to a "Buy" rating. Goldman Sachs also initiated coverage on Gold Fields Ltd. ($GFI) with a "Buy" rating and Anglo-Gold Ashanti ($AU) with a "Neutral" rating. Gold Fields and Anglo-Gold Ashanti are South African-based gold miners as well. Goldman Sachs downgraded Jersey, Channel Islands-based Randgold Resources ($GOLD) to "Neutral" from "Buy" after a strong run-up in valuation.

The firm highlighted their perspective that Harmony Gold and Gold Fields have a high exposure to South African gold production and above average cash costs per ounce. Goldman Sachs stated, "This suggests that they will see the largest benefits from a combination of rising U.S. dollar gold prices and a weakening South African rand over the next two years."

For its valuation models, Goldman is forecasting average gold prices of $1,261 an ounce for 2010, and even higher average prices of $1,425 an ounce in 2011. The firm's gold price model is driven largely by gold ETF inflows like the SPDR Gold Trust ($GLD) and expected net bullion buying activity by central banks. Earlier this year, the Reserve Bank of India bought 200 metric tons of gold from the International Monetary Fund.

Spot gold is trading at $1,093 an ounce, up 0.7 percent this morning.

Company Profiles

AngloGold Ashanti is the third-largest gold producer in the world and the biggest in Africa, with projected production of 4.9 million ounces in 2009. AngloGold’s production in South Africa is characteristically from deep-level hard rock operations with the balance of ounces outside South Africa coming from shallow and surface operations. AngloGold has 21 production operations in 10 countries on four continents, with a large and global project pipeline. Countries with production operations include South Africa, Argentina, Australia, Brazil, Ghana, the Republic of Guinea, Mali, Namibia, Tanzania and the United States. AngloGold also produces uranium, silver, and sulphuric acid as byproducts of the gold recovery process.

Gold Fields, with almost 4 million ounces of annual production, is the world’s fourth largest producer of gold from eight operating mines in South Africa, Ghana and Australia. A ninth mine, Cerro Corona Gold/Copper mine in Peru, commenced production in August 2008. Management expects Cerro Corona to be producing at a rate of about 375,000 gold equivalent ounces per year in December 2009. Gold Fields’ production is unhedged though they may hedge for development projects. The company has proven and probable ore reserves of 81 million ounces and mineral resources of 234 million gold ounces .

Harmony Gold, the fifth largest gold producer in the world, produced 1.5 million ounces of gold in 2009. The company's mining operations in South Africa include 10 underground operations, an open-pit mine and 9 processing plants. Like other legacy South African gold miners, the company’s South African mines are very deep and high grade. Harmony's exploration and development is currently focused in Papua New Guinea (PNG), including the Morobe joint venture project with Newcrest Mining. Redevelopment has also begun in several of Harmony Gold’s South African mines. Harmony's gold-only reserves are 50.5 million ounces with 256 million ounces of gold resource.

Randgold Resources is the largest gold miner in West Africa. The company has mining interests in Mali, Ivory Coast, Senegal, Burkina Faso, Ghana, and Tanzania. Proven and probable reserves are 8.9 million gold-only ounces with total resources of 16.1 million ounces. The company is on track to produce more than 440,000 ounces of gold for 2009. Discoveries to date include the 7.5 million-ounce Morila deposit in southern Mali, the 6 million-ounce-plus Yalea deposit at Loulo in western Mali, and the 3 million-ounce Tongon deposit in the Ivory Coast.

1 comment:

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