By Vanessa Desloires
The sky-scraping performance of Australian gold mining stocks this year has led to the inevitable questions of when to expect a correction, but analysts say there's potential still to be realised.
Of the biggest names in the index, Evolution Mining has risen 86 per cent this year to date, Newcrest Mining 83 per cent, Regis Resources 74 per cent and Northern Star Resources 69 per cent.
Analysts at Morgan Stanley say globally, total shareholder returns for 2016 so far for precious metal shares have hit 169 per cent, sending valuations at or above historical highs.
"While lifting gold prices have driven upgrades to consensus earnings, we maintain more than 50 per cent of the equity performance is explained by multiple re-ratings," the investment bank said in a client note, adding the market is paying a 32 per cent premium compared with history.
Gold miners stand out for their strong balance sheets and, according to Morgan Stanley, 10 of 27 companies are sitting on net cash, with an average net debt to EBITDA [earnings before interest, tax, depreciation and amortisation] ratio of 0.3-times.
They say this rally is different to previous cycles. This year's rally stands out among the last six rallies over the past 40 years. In just eight months gold equities have surged 111 per cent, while the previous comparable rally took 20 months to achieve the same result.