Slightly higher Q4 gold prices should
support a modest q-on-q improvement in
EPS, but conservative 2013 guidance
may be disappointing
 South African miners hit by strikes, but
radical restructuring now getting
underway, led by the Sibanye spin-out
 Reduction in our gold price outlook
results in significant cuts in target prices
across our coverage; we downgrade
Agnico Eagle to Underweight (V) from
Neutral (V) and Royal Gold to Neutral
from Overweight, but continue to see
upside at other gold miners
The gold price in Q4 rose from Q3, but despite what we viewed
as strong macro fundamentals, it peaked at USD1,792/oz, and
the price only managed to average USD1,718/oz for the quarter.
Although better than the prior quarter, we find the average
price disappointing.
Gold stocks had a tough time in Q4 and the FTSE Gold Mines
Index ended down 15% for the quarter, continuing the de-rating
of the sector and as gold itself ended the year on a down note.
Just as cost trends were beginning to show some signs of getting
back under control, the quarter was unfortunately marked by
severe strike activity in South Africa, which has dashed hopes
of a significant improvement at the South African producers
and increased risk perceptions in South Africa. Elsewhere,
some companies also warned of the impacts of capital costs
moving higher and began to try to lower expectations both in
terms of costs and timing.
On a brighter note, the quarter was distinguished by the Gold
Fields announcement of a ground-breaking deal in the sector, to
spin off its deep-level, labor intensive operations into a new
company, Sibanye Gold. We believe this will improve
management focus and also open up investment choices in the
sector to investors with different risk-reward expectations.
Given the relatively poor performance of the largest gold
miners, we believe this type of corporate restructuring will gain
favor in many of the other companies, breaking up any possible
value-traps and allowing a release of value.