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Intermediate Gold Miners: the Word on Wall Street

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Jul. 20 2016, Published 12:53 p.m. ET

Intermediate gold miners’ performance

Like senior gold miners (GDX), intermediate gold miners (GDXJ) also have shown very strong performances year-to-date. Yamana Gold (AUY) and IAMGOLD (IAG) outperformed their closest peers. They gained 200% each in the first six months of the year. Historically, these stocks have lagged behind their peers due to their high financial leverage and operating leverage. The same higher beta is leading their share prices to rise more than peers’.

Eldorado Gold (EGO), on the other hand, has lagged its peers by a wide margin, rising just 59%. Permitting issues and geographical concerns have plagued the share price since the start of the year.

Agnico Eagles Mines (AEM) and New Gold (NGD) have risen 100% and 98%, respectively.

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Eldorado: Analysts’ favorite

Among intermediate gold miners, Eldorado is analysts’ favorite with 58% “buy” ratings and 37% “hold” ratings. In contrast, most analysts are bearish on IAMGOLD with only 6% recommending a “buy” and 41% recommending a “sell.” Recently, analysts have started turning bullish on Eldorado. As gold prices are likely to remain buoyant, many analysts are expecting Eldorado’s stock price to catch up with its peers. IAMGOLD, on the other hand, has run up quite ahead of its peers, and analysts expect a pullback in the absence of any major fundamental improvement in the stock.

Paring back expectations

Agnico remains the next-highest buy-rated stock in the intermediate space with 52% “buy” ratings. Its popularity among analysts, however, has fallen drastically since the start of 2016. It had 80% “buy” ratings and only 8% “sell” ratings at the start of 2016. It’s a relatively low-cost producer, and its balance sheet is also strong. In this rising gold price environment, this strength leads to lower beta and limited upside potential.

Most analysts recommend a “hold’ for Yamana at 45%. Its target price of $5.3 implies a downside potential of 6.4%. After a very strong run for the stock, analysts have pared back their expectations. New Gold has 39% “buy” ratings and 56% “hold” ratings.

In the next part of this series, we’ll discuss the changes in analysts’ recommendations for intermediate gold miners.

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