Australia | Oct 24 2006
By Greg Peel
On October 12, SB Citigroup included Agincourt (AGC) among its list of gold duds for 2006. The gold price has fallen some 20% from its highs, but Agincourt fell more than 35%. Stick to the majors, Citi suggested to gold investors.
Citi does not cover Agincourt. In fact prior to today only one broker in the FNA database did – Macquarie – which rated the stock Neutral last month with an observation that the trashed share price offered good value. The stock fell thereafter, despite a $1.40 target from Macquarie, but it has since bounced strongly off $1.00 to close at $1.16 yesterday.
The gold price may not have excited in the meantime, but Deutsche Bank analysts are certainly very excited anyway. Agincourt has just begun drilling at its recent acquisition – the Martabe project in Northern Sumatra, Indonesia – which it snaffled from Newmont. Deutsche calls Martabe a “company making” acquisition.
With Martabe, says Deutsche, Agincourt moves “from zero to hero”, with the potential to become one of Australia’s top six gold producers. It is an excellent acquisition, and provides investors with the opportunity for early entry into a developing company, the analysts offer.
At $1.16, Agincourt is trading below its net present value, and well below the 2-3x multiples associated with pure gold stocks. Martabe also offers further upside potential through exploration in what Deutsche describes as a prosperous region.
There is an added option in the Agincourt price, in that the company also owns 57.3% of WA uranium hopeful NovaEnergy. Deutsche suggests this could be a good bet ahead of the Labor Party conference in April. FN Arena is not so hopeful.
The world seems to have it in its head that April’s Labor conference will be tantamount to the second coming for uranium investors. But either through ignorance of Australian politics, or through blind faith, commentators seem not to realise that (a) just because Kim Beazley has put the uranium issue on the table it does not mean the caucus is going to suddenly agree to uranium mining and (b) even if the federal party votes in favour, WA premier Carpenter has constantly said that there will be no uranium mining in his state no matter what happens. To quote another politician, everyone should just take a cold shower.
However, Carpenter may not live forever, and the WA Labor party may one day find itself in opposition, so all is not lost. Either way Agincourt’s stake is there, and it has implicit value sometime in the future perhaps.
Let’s stick to gold. Deutsche has initiated coverage on Agincourt with a Buy rating and a target of $1.46. You’d go all long way to find an analyst who doesn’t think the gold price will test new highs some time over the next year or two, and despite Citgroup’s recommendations, analysts do find that both Newcrest (NCM) and Lihir (LHG) tend to run ahead of production realities. On that basis Deutsche’s excitement may entice investors to stick this one in the back of the portfolio. If Deutsche’s predictions ring true, then chances are Agincourt will receive more coverage, and that always leads to more investor interest.
