With gold prices expected to stay range bound in 2010, the performance of gold stocks will depend on the transition of junior miners into something more, says Michael Curran, RBC Capital Markets analyst.
"With reduced volatility expectations, we look to re-rating opportunities as our favoured investment strategy for this year (versus other strategies such as value, momentum, leverage, financial turnaround, takeover targets etc.)," he said, maintaining his forecast for gold to trade between US$1,000 and US$1,250 per ounce.
"This strategy arguably is best reflected in the smaller cap space, as several companies look to successfully move projects ahead to construction and/or production during the next 12 months."
Mr. Curran breaks down the re-rating opportunities into three categories: small producers with growing production; exploration companies looking to become new producers; and exploration companies advancing projects to development.
In the first category, the analyst likes companies that are going to advance projects that can move production from less than 250,000 ounces a year to a range between 250,000 and 1 million ounces a year.
Historically, this jump from Tier III to Tier II production results in higher trading multiples and better valuation, he said, adding Jaguar Mining Inc., Alamos Gold Inc. and Great Basin Gold Ltd. are all good candidates to make the jump this year.
As for the explorers ready to become producers, Mr. Curran's favourite bet is Anatolia Minerals Development Ltd.. He picked Detour Gold Inc. as his favoured candidate to gain value as it advances it Detour Lake project from feasibility to construction this year.