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The Zacks Analyst Blog Highlights: Sandstorm Gold, Randgold Resources, Eldorado Gold and Acacia Mining
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For Immediate Release
Chicago, IL – November 29, 2017 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Sandstorm Gold Ltd. (SAND - Free Report) , Randgold Resources Ltd. (GOLD - Free Report) , Eldorado Gold Corp. (EGO - Free Report) and Acacia Mining plc .
Here are highlights from Tuesday’s Analyst Blog:
Gold Imports Dip in India: Has Gold Lost Its Shine?
India, the world’s second largest gold consumer after China, reported a drop of 16% in gold imports in October. In value terms, imports were at $2.94 billion in October compared with $3.5 billion last year. The setback can primarily be attributed to timing of festivals, higher prices that dented demand as well as the impact of imposition of Good and Service Tax (“GST”).
In September, India’s gold imports rose 31% year over year as jewelers perked up their purchases ahead of Diwali which fell at the end of the month. However, the country’s imports were 48 tons in September, much lower than the monthly average of 75 tons for 2017. Indian consumers had preponed their gold purchases in anticipation of the 3% GST that was to be implemented at the beginning of July.
Indian Gold Industry Riddled By Headwinds
Per the World Gold Council, global gold demand declined 9% year over year to 915 tons — at levels last seen in the third quarter of 2009. Significantly lower ETF inflows compared with the prior-year quarter and weak demand for jewelry pinned down by tax, along with regulatory changes in India led to the downfall.
India’s gold demand in the quarter fell 24% to 145.9 ton due to the implementation of GST and anti-money laundering legislation (AML) around jewelry retail transactions. Surprisingly, India which was the main catalyst in jewelry demand in the second quarter, reversed course to be the main drag on the jewelry demand in the third quarter. Jewelry demand in the country declined 25% to 114.9 tons after three straight quarters of growth.
Further, the Indian market was flooded with South Korean gold. Some export houses, which account for nearly a quarter of total imports by India, were taking advantage of India’s free trade agreement between the two countries and importing the bullion without paying import duty.
These imports were melted down for processing by jewelry manufacturers rather than sold directly to retail investors and impacted India’s domestic gold price. Indian government tightened gold import norms for export houses by restricting them from importing the yellow metal only for manufacture and export purposes and not for selling in the domestic market.
To make matters worse for the industry, the government brought the gems and jewelry industry under the purview of the Prevention of Money Laundering Act (“PMLA”) in August. The Act required declaration of documentation for certain jewelry transactions. This deterred customers in rural India as they shied away from providing necessary documents.
In October, the Indian jewelry industry heaved a sigh of relief as the government removed the industry from the purview of the PMLA — a well-timed step, ahead of the festive season. The withdrawal had spurred expectations of recovery in demand. Normally, there is usually a surge in demand in the last quarter as Indians spruce up their buying for the wedding season as well as festivals such as Diwali, when buying the metal is considered auspicious. However, demand for the precious metal during Diwali was subdued this year. People are investing more money in equity, which has been gaining this year.
Sales have weakened following the imposition of GST. Post-GST sales were very minimal which has led to the pile-up in jewelry. Also, inconsistent rainfall had its toll on gold jewelry buying in rural India, which makes up two-thirds of India's gold demand. This is likely to impact demand in the next quarter as well.
Bright Spots Noted in the Quarter
In the third quarter, China witnessed a boost of 13% in festive buying after 10 consecutive quarters of decline. Retail demand is also high around the Chinese New Year. China is likely to experience solid demand in the future. This is because the people consider gold as a natural medium for savings and diversification in the form of bars, coins or jewelry.
Further, the United States marked the strongest third quarter in the last five years driven by economic growth, improving employment levels and growth in consumer confidence. Demands from central banks also remain strong with Turkish and Russian central banks adding to their gold reserves. Also, gold is witnessing increased demand in technology, bolstered by demand for high-end smartphones after years of declines.
India Will Bounce Back
Analysts apprehend that gold imports in India to fall further in the last two months of the year due to weak demand during key festivals and as investors seek better returns from riskier assets like equities. Lower gold purchases by India could be a drag on global prices. Per the World Gold Council, full year demand in 2017 from India will be below the five-year average, at around 650-750 ton, most likely at the lower end of the range.
The scenario will improve in 2018, which is anticipated to be the beginning of recovery phase. It is believed that the government measures like mandatory hallmarking next year, which will be a positive move for the industry, could impact the trade. Given the insatiable appetite for gold and the rising wealth of Indian consumers, demand is projected to remain strong in the long run.
Going Forward
While new mines were limited during the quarter, a number of new mines are expected to enter production in the fourth quarter. This might support mine production till 2018. Noteworthy mines include The Natalka project in Russia, Canada’s Rainy River project and Houndé in Burkino Faso.
An impending rate hike may dent gold prices as higher interest rates tend to boost the dollar and push bond yields up, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion. However, geopolitical tensions are anticipated to continue supporting gold prices.
So far this year, the Gold Mining industry has rallied 9.5% compared with the S&P 500’s gain of 16.7%. Going by the EV/EBITDA multiple (a preferred valuation metric for mining companies that have high capital expenditures), the gold mining industry has a trailing 12-month EV/EBITDA multiple of 7.39, much lower than the S&P 500’s EV/EBITDA multiple of 11.51. The industry’s lower-than-market positioning calls for some more improvement in the near term.
Sandstorm Gold pulled off an average positive earnings surprise history of 33.33% in the trailing four quarters. While, the Zacks Consensus Estimate for 2017 has moved up 25% in the past 30 days, for 2018 the estimate moved north 40%. So far this year, the stock has gained 15.2%.
However, we suggest staying away from or getting rid of the stocks carrying a Zacks Rank #5 (Strong Sell) like Randgold Resources Ltd., Eldorado Gold Corp. and Acacia Mining plc. Randgold Resources estimates for 2017 and 2018 have gone down 10% and 1%, respectively, in the last 30 days. Eldorado Gold’s estimate for 2017 is at breakeven at present, down from an expectation of 2 cents per share 60 days ago. The estimate for 2018 has plunged 71%. Acacia Mining’s earnings estimate for 2018 has gone down 20% over the last 60 days.
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Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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The Zacks Analyst Blog Highlights: Sandstorm Gold, Randgold Resources, Eldorado Gold and Acacia Mining
For Immediate Release
Chicago, IL – November 29, 2017 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Sandstorm Gold Ltd. (SAND - Free Report) , Randgold Resources Ltd. (GOLD - Free Report) , Eldorado Gold Corp. (EGO - Free Report) and Acacia Mining plc .
Here are highlights from Tuesday’s Analyst Blog:
Gold Imports Dip in India: Has Gold Lost Its Shine?
India, the world’s second largest gold consumer after China, reported a drop of 16% in gold imports in October. In value terms, imports were at $2.94 billion in October compared with $3.5 billion last year. The setback can primarily be attributed to timing of festivals, higher prices that dented demand as well as the impact of imposition of Good and Service Tax (“GST”).
In September, India’s gold imports rose 31% year over year as jewelers perked up their purchases ahead of Diwali which fell at the end of the month. However, the country’s imports were 48 tons in September, much lower than the monthly average of 75 tons for 2017. Indian consumers had preponed their gold purchases in anticipation of the 3% GST that was to be implemented at the beginning of July.
Indian Gold Industry Riddled By Headwinds
Per the World Gold Council, global gold demand declined 9% year over year to 915 tons — at levels last seen in the third quarter of 2009. Significantly lower ETF inflows compared with the prior-year quarter and weak demand for jewelry pinned down by tax, along with regulatory changes in India led to the downfall.
India’s gold demand in the quarter fell 24% to 145.9 ton due to the implementation of GST and anti-money laundering legislation (AML) around jewelry retail transactions. Surprisingly, India which was the main catalyst in jewelry demand in the second quarter, reversed course to be the main drag on the jewelry demand in the third quarter. Jewelry demand in the country declined 25% to 114.9 tons after three straight quarters of growth.
Further, the Indian market was flooded with South Korean gold. Some export houses, which account for nearly a quarter of total imports by India, were taking advantage of India’s free trade agreement between the two countries and importing the bullion without paying import duty.
These imports were melted down for processing by jewelry manufacturers rather than sold directly to retail investors and impacted India’s domestic gold price. Indian government tightened gold import norms for export houses by restricting them from importing the yellow metal only for manufacture and export purposes and not for selling in the domestic market.
To make matters worse for the industry, the government brought the gems and jewelry industry under the purview of the Prevention of Money Laundering Act (“PMLA”) in August. The Act required declaration of documentation for certain jewelry transactions. This deterred customers in rural India as they shied away from providing necessary documents.
In October, the Indian jewelry industry heaved a sigh of relief as the government removed the industry from the purview of the PMLA — a well-timed step, ahead of the festive season. The withdrawal had spurred expectations of recovery in demand. Normally, there is usually a surge in demand in the last quarter as Indians spruce up their buying for the wedding season as well as festivals such as Diwali, when buying the metal is considered auspicious. However, demand for the precious metal during Diwali was subdued this year. People are investing more money in equity, which has been gaining this year.
Sales have weakened following the imposition of GST. Post-GST sales were very minimal which has led to the pile-up in jewelry. Also, inconsistent rainfall had its toll on gold jewelry buying in rural India, which makes up two-thirds of India's gold demand. This is likely to impact demand in the next quarter as well.
Bright Spots Noted in the Quarter
In the third quarter, China witnessed a boost of 13% in festive buying after 10 consecutive quarters of decline. Retail demand is also high around the Chinese New Year. China is likely to experience solid demand in the future. This is because the people consider gold as a natural medium for savings and diversification in the form of bars, coins or jewelry.
Further, the United States marked the strongest third quarter in the last five years driven by economic growth, improving employment levels and growth in consumer confidence. Demands from central banks also remain strong with Turkish and Russian central banks adding to their gold reserves. Also, gold is witnessing increased demand in technology, bolstered by demand for high-end smartphones after years of declines.
India Will Bounce Back
Analysts apprehend that gold imports in India to fall further in the last two months of the year due to weak demand during key festivals and as investors seek better returns from riskier assets like equities. Lower gold purchases by India could be a drag on global prices. Per the World Gold Council, full year demand in 2017 from India will be below the five-year average, at around 650-750 ton, most likely at the lower end of the range.
The scenario will improve in 2018, which is anticipated to be the beginning of recovery phase. It is believed that the government measures like mandatory hallmarking next year, which will be a positive move for the industry, could impact the trade. Given the insatiable appetite for gold and the rising wealth of Indian consumers, demand is projected to remain strong in the long run.
Going Forward
While new mines were limited during the quarter, a number of new mines are expected to enter production in the fourth quarter. This might support mine production till 2018. Noteworthy mines include The Natalka project in Russia, Canada’s Rainy River project and Houndé in Burkino Faso.
An impending rate hike may dent gold prices as higher interest rates tend to boost the dollar and push bond yields up, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion. However, geopolitical tensions are anticipated to continue supporting gold prices.
So far this year, the Gold Mining industry has rallied 9.5% compared with the S&P 500’s gain of 16.7%. Going by the EV/EBITDA multiple (a preferred valuation metric for mining companies that have high capital expenditures), the gold mining industry has a trailing 12-month EV/EBITDA multiple of 7.39, much lower than the S&P 500’s EV/EBITDA multiple of 11.51. The industry’s lower-than-market positioning calls for some more improvement in the near term.
Investors keen in this space can consider Sandstorm Gold Ltd., a Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sandstorm Gold pulled off an average positive earnings surprise history of 33.33% in the trailing four quarters. While, the Zacks Consensus Estimate for 2017 has moved up 25% in the past 30 days, for 2018 the estimate moved north 40%. So far this year, the stock has gained 15.2%.
However, we suggest staying away from or getting rid of the stocks carrying a Zacks Rank #5 (Strong Sell) like Randgold Resources Ltd., Eldorado Gold Corp. and Acacia Mining plc. Randgold Resources estimates for 2017 and 2018 have gone down 10% and 1%, respectively, in the last 30 days. Eldorado Gold’s estimate for 2017 is at breakeven at present, down from an expectation of 2 cents per share 60 days ago. The estimate for 2018 has plunged 71%. Acacia Mining’s earnings estimate for 2018 has gone down 20% over the last 60 days.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.