Broker snap: Citi cuts ratings for Randgold, Fresnillo and Polyus

2nd Oct 2013 09:42

Citigroup has downgraded its ratings for UK-listed precious metal miners Randgold Resources, Fresnillo and Polyus Gold, raising concerns over current pricing and valuations.In a research report on Wednesday, the US bank said: "We are bearish on gold and silver shares for two reasons: firstly, we are bearish on the metals; secondly, we note that equity valuations contracted sharply after the last big mega market in the '70s and we do not think that valuations have completed enough of that post-peak phase yet in the current bear market."Gold peaked in 2011 and is still in a bear market, Citi believes, with the recent bear-market rally now drawing to a close. "In early July we upgraded three of the better-quality names to 'neutral' on the assumption that gold could have a meaningful rally within an ongoing bear market. We are now downgrading gold shares once more."While stocks' valuations appear cheaper than a couple of years ago, the bank reckons they are still expensive against historical comparatives and have "not yet contracted enough".Fresnillo and Randgold have been cut from 'neutral' to 'sell', while Polyus has been lowered from 'buy' to 'neutral'."These changes are made despite there being no changes to our financial models. All that we have done is to review the premium between the better quality golds and the poorer quality golds and have decided to close the gap based on what is on offer from competing miners."Citi also said that nearly the whole global gold industry ("based on production on our cost curve") is currently cash-burning on an 'all-in' cost basis: "This is mainly as the gold producers are failing to cut capital expenditure, exploration and corporate costs quickly enough to keep up with a 12% fall in the gold price."BC