-->Global Gold Equities
Quarterly Review - July 2003
Overview
Based on our examination of the monthly index returns over the past 14 years,
average performance of gold equities is best in the months of September and
December (page 7). July and August have historically been appealing months to
assemble positions in the gold sector, with September being a critical month to
reassess holdings. However, we expect the next two months to be rather quiet in
currency, bullion and equity markets. Combined with the expected weakness in
the U.S. dollar through the rest of this year, we recommend that investors build
positions throughout July and August. We are maintaining our long-term forecast
of $350 per ounce for the spot gold price beyond Q3/04.
Highlights
* Gold equity prices have historically shown a 3.0x to 5.0x leverage to
movement in the spot gold price (i.e., a 1.0% move in the spot gold price
usually corresponds to a 3.0% to 5.0% move in equity prices). The relative
performance of companies depends on the degree of operating leverage
(lower margins = higher leverage), on balance sheet leverage (higher
debt:equity = higher leverage) or on both.
* Although we maintain our $350 per ounce long-term gold price, the
Washington Agreement governing European central bank sales is due for
renewal in September 2004. In Q2/04 and Q3/04, we expect speculation about
the terms and timing of the new agreement and foresee some weakness in the
gold price at that time.
* We expect the North American gold producers to generally show steady
production numbers in Q2/03 compared to Q1/03, especially Barrick
(improvements at the Goldstrike Complex, as open-pit head grades begin to
return to reserve levels through to Q3) and Kinross (improvements to be seen
in Timmins and at Fort Knox in Alaska).
* Higher U.S. dollar gold prices in recent times are unlikely to translate into
increased profitability for most Australian gold producers, due to the almost
synchronous appreciation in the US$/A$ exchange rate. We tend to favour
companies with low-cost production or offshore assets and largely U.S. dollar
denominated cost bases, as these should insulate financial performance from
the potential further detrimental effects on revenue of a stronger domestic
currency.
* The recent trend in South Africa has been the acquisition of cheap resource
ounces, which can be turned into profitable mineable ounces over time in a
rising gold price environment. Harmony Gold Mining Ltd has led the way
with a 34.5% purchase of Avmin (indirectly a 14.5% purchase of Avgold).
AngloGold has entered into a proposed merger with Ashanti (26 AU for 100
ASL shares). The deal should be accretive on an EPS and a CFPS basis for
AngloGold and indicates the pressure to deliver annual production growth
and project diversity outside of South Africa.


hereingestellt mit Einverständnis der RBC-Dominion-Securities Ltd., Toronto.