Johannesburg - RBC Capital Markets, the corporate and investment banking division of Royal Bank of Canada, predicted gold should rally through $900/ounce in the first half of 2009 at the firm's annual gold conference held in London on Thursday.
Head of global mining research Stephen Walker said: "While we recently lowered our expectations for gold prices over the next few years as the global economy slows, we remain very positive on the outlook for gold.
"We believe that the gold market should begin to price in a recovery in the global economy and, with that recovery, an increase in inflation expectations, particularly given the enormous amount of monetary and fiscal stimulus being applied by central banks."
RBC equity analyst Leon Esterhuizen said: "The current financial crisis has delivered the perfect conditions for gold to rise over the next year or two."
Background 'good for gold'
He also put buy recommendations on the three major South African gold producers - AngloGold Ashanti, Gold Fields and Harmony - as well as on some of the country's junior producers, in particular DRDGold.
That's despite the under-performance of these shares over the past three years during which, according to Esterhuizen, "massive cost increases and persistent failure to deliver against production targets have seen these gold shares shunned".
Esterhuizen said: "We expect the major SA gold producers to have finished restructuring at the end of 2008 and to be looking forward to a period of decent profit growth, much of which will be delivered from low-cost, offshore assets.
"The right and ready state of the companies is compounded by what we see as the most optimistic background for gold price appreciation in a very long time.
"The combination of a weaker dollar, a strong possibility of a higher oil price and the potential for further rand weakness over an asset base that is just getting ready to deliver good results delivers a real potential for explosive increases in profitability and, hence, higher share prices," he said.
Esterhuizen also pointed out that, after years of high capital expenditures, most of the majors were now indicating lower, near-term capital expenditure profiles.
'Pick of the bunch'
Esterhuizen said AngloGold Ashanti should have removed most of its "debilitating hedge book" by the end of 2008, and would expand production from 2009.
He added that Gold Fields should have fixed the problems at its Kloof mine and started delivering exceptional cash flow from the Cerro Corona mine, while Harmony would see constant improvement in margin as new, higher-grade projects started to roll out.
Esterhuizen said: "Given its marginal asset base but strong balance sheet, DRDGold could be the pick of the bunch."
Among the SA junior gold stocks, Esterhuizen's top pick was Great Basin Gold. He was also bullish on Pan African Resources, while the stocks he rated poorly included Mintails, Pamodzi and Wits Gold
Esterhuizen said: "Pamodzi's inability to find financing for too long has dealt the company a potentially mortal blow. Mintails only offers value, in our opinion, on the view that it is taken over or sells its stake in Ergo while we continue to see no reason to invest in Wits Gold."
It should be pointed out that Esterhuizen has radically revised his opinion on Pamodzi from a report he put out at the beginning of September.
Despite Pamodzi's severe financial problems, he said at that time that "even discounting our current net asset value (NAV) by 50% in an attempt to cater for the problems, we still see a target price potential of R15/share.
"Increasing costs sharply and pushing back production two years delivers an NAV estimate of R10/share."
Esterhuizen's target price then was R10. He has now reduced this to R2, citing concerns that the R400m Pamodzi has finally managed to raise may be "insufficient" and he believed there was "still a question mark over survivability".
- Miningmx.com
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