Even as the world is dumping equity markets and rushing for gold, there is big opportunity for mining companies.

When gold prices soared, gold mining companies’ stocks are witnessing a surge also.

An indication for this was visible at the BMO Capital Markets’ annual global mining conference. About 300 investors are expected at the meet, which will end on Wednesday.

The event, which attracts senior management from most of the world’s major mining companies, drew about 365 investors last year.

Again, next week’s Prospectors and Developers Association of Canada conference in Toronto is expected to draw another huge crowd.

The prospects for equity markets and numerous sector indexes have dimmed during the global recession, but gold and the companies that mine it have not lost their lustre.

With gold prices nudging their all-time high and energy and other costs falling, mining company profit margins are widening, making their shares are attractive.

Within the next year, the gold stocks will sell at significant premiums to traditional earnings measures or net asset value measures.

Moreover, analysts expect acquisitions in the gold sector to accelerate, as larger players pounce on their cash-strapped smaller colleagues, in a bid to grow their base.

Lower fuel, raw materials and equipment costs, combined with weaker Canadian and Australian dollars and a flight to gold as a safe haven, have spurred gold miners’ stocks recently.

The gold and silver index .XAU, which comprises major US and Canadian gold mining stocks, has more than doubled over the last four months. Spot gold XAU was selling for $978.80 per ounce in New York on Thursday, closing in on its all-time high of $1,030.80 from March 17.

Since most major gold players no longer hedge production, they stand to gain from the recent run-up in gold prices.

Egizio Bianchini, head of BMO’s global mining group, said investors are coming for a couple of reasons: some are trying to determine when the commodity cycle will get back on track, while others are simply bargain-hunting for good stocks.

But if the BMO conference is proceeding as usual, at least one thing is different: there are a lot less hedge funds in attendance.

For the last few years, over-leveraged hedge funds played a crucial role in driving commodity prices and mining equity valuations up to outrageous highs.

Many of those funds have unwound their positions, and some simply do not exist anymore. So the conference is back to its traditional audience of resource-focused fund managers.

Another change from prior years is that gold companies are expected to generate a lot more interest from investors than anybody else.

That should come as no surprise, as they are the only ones that have emerged stronger from the carnage of the last few months. And after a big round of financings, the larger gold miners are expected to get very aggressive on the mergers and acquisitions front.

source: CommodityOnline

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