By Tim Treadgold
Despite recent weakness in the price, gold is proving to be an embarrassment for investment banks in Australia as they are forced to play catch-up before a problem of under-exposure worsens when the list of top 100 stocks on the local market is “re-balanced” in September.
For the past few years Newcrest Mining was the only gold-mining company in a country which has one of the world’s biggest gold-mining industries considered eligible for inclusion in the ASX top 100, a list which forms the basis of some managed funds.
But, on current market values another three gold-miners could force their way into the ASX100 thanks to sharp price rises over the past six months.
The problem for fund managers focused on the ASX100 is that the rise of Evolution Mining, Northern Star Resources and OceanaGold has caught them short.
Even Newcrest, the long-term leader has struggled to develop a following among banks and stockbrokers despite its top 20 status with most professionals willing to discount the the stock and recommend it as a sell.
The consensus view of Newcrest is that at $A23.98 ($17.87) the stock is 26% over-valued.
Credit Suisse, Morgan Stanley, UBS and Deutsche Bank say is a sell. Only Citi has a buy in a list compiled by the investment monitoring business, FN Arena.
Newcrest has been a problem for the banks for some time, losing friends three years ago when it suspended dividends after profits flipped into losses.
Gold Does Not Fit Some Models
Dividends are expected to be resumed soon which should help bank analysts slot Newcrest into their all-important financial models.
The problem with modelling when it comes to gold is that...