Deutsche Bank Raises Price Targets on Top Miners as Gold Continues Climb

March 2, 2016 by Lee Jackson

After almost four years in the proverbial Wall Street doghouse, the top gold stocks are finally getting a little love from investors, and for those looking to add the precious metal to portfolios, now may be the perfect time as prices are still way down from the highs posted in 2011 and 2012.

In a new research report, Deutsche Bank raises the gold price target for 2016 by 18%, and an average of 13% for the period of 2016 to 2018. While nowhere near the 2011 highs, it is still a huge rebound off the cycle lows printed back in December. The analyst cites slowing global growth momentum, the rising risk of a U.S. credit default cycle, increasing risk of a large one-off yuan devaluation and delayed interest rate tightening by the Federal Reserve. These four scenarios are not that hard to imagine.

We screened the Deutsche Bank metals universe for stocks currently rated Buy, and found two top companies for investors to consider.

Barrick Gold

This is one of the top companies in the sector and its stock has been absolutely eviscerated over the past three years. Barrick Gold Corp. (NYSE: ABX) produces and sells gold and copper. The company is also involved in exploration and mine development activities in various countries, including the United States, Canada, Australia, Argentina, Chile, Peru, the Dominican Republic, Papua New Guinea, Tanzania, Zambia, and Saudi Arabia.

Barrick’s principal properties include the Cortez, Goldstrike, Pueblo Viejo, Lagunas Norte, Veladero, Zaldívar and Lumwana mines, and its Pascua-Lama project. As of December 31, 2014, the company had proven and probable mineral reserves of 93.0 million ounces of gold and 9.6 billion pounds of copper.

Deutsche Bank has pointed out in the past that Barrick is the world’s largest gold mining company, it also has exposure to copper and silver and it holds interests in a nickel project in the Democratic Republic of Congo. Last year the company slashed the dividend and continues on a strong cost-cutting course that includes the sale of its Australian Cowal gold mine for $550 million to the Australia-based Evolution Mining. The company generated $471 million in free cash flow (FCF) in 2015, its first positive FCF in the past four years.

Barrick investors receive a 0.6% dividend. The Deutsche Bank price target for the stock is raised to $14.50 from $12.00, and the Thomson/First Call consensus target is $12.12. Shares closed most recently at $13.27.

Newmont Mining

This is one of the largest mining companies, as well as a solid buy for more conservative accounts. Newmont Mining Corp. (NYSE: NEM) is a leading gold and copper producer. It employs approximately 29,000 employees and contractors, with the majority working at managed operations in the United States, Australia, Ghana, Peru, Indonesia and Suriname.

Newmont is the only gold producer listed in the S&P 500 index, and it was named the mining industry leader by the Dow Jones Sustainability World Index in 2015. The company is an industry leader in value creation, supported by its leading technical, environmental, social and safety performance. Newmont was founded in 1921 and has been publicly traded since 1925.

The company posted mixed results recently, with earnings that missed the Wall Street estimates while revenues actually came in above estimates. The company has lowered debt almost 19% since the end of 2014, a huge positive for investors.

Newmont investors receive a 0.4% dividend. The Deutsche Bank price target is raised to $31.50 from $28.00, and the consensus target is $25.54. The stock closed Tuesday at $25.39.


In the report, the Deutsche Bank team also raised price targets for silver producers Pan American Silver Corp. (NASDAQ: PAAS) and Hecla Mining Co. (NYSE: HL), which are both rated Buy, given the two companies solid gold exposure (26%, 38%, respectively). They also have cited in the past the significant non-U.S. cost exposures and favorable risk-reward in the stocks.

Proper asset allocation should always include a single-digit percentage holding of precious metal like gold and silver. Not only do they hedge over the long term, they can really help if the market does go in to correction or bear market mode, as they tend to trade inverse to markets trading down.

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