Gold Producers - Shame Or Fame
For 2008?
A Report Card On Performance

First-quarter results did not light up the screen due in part to production
shortfalls. Nevertheless, group profits grew by 42% over Q4/07, which in
turn, were up by 17% over Q3/07 results. We think that earnings growth
will continue to climb as gold prices rise faster than costs.

Gold stocks are not alone in their underperformance relative to bullion. Oil
shares have performed worse than oil prices suggesting that the world is in
denial of new commodity highs. We think a catch-up will occur for both
sectors much as it has done for the past several years.

The recent pullback in gold shares presents an opportunity to reload or
position a portfolio for what is usually a strong second half of the year. In
each of the past five years, in H2 bullion increased 16% coupled with gold
shares up about 25% on average.

Expectation of continuing weaker recoveries causes us to downgrade our
rating on Alamos to SU from SP as of 6/2. We are also upgrading our rating
on Barrick to SO from SP anticipating stronger H2 production coupled with
low earnings multiples. Other top picks include KGC, GG, CG, and EGO.
All