The average value of non-producing gold companies relative to their resources fell to a new low last week when gold dipped to US$772 per ounce, but this could prove to be a “low water mark” for the group.

For the 40 or 50 junior gold miners RBC Capital Markets has tracked for the past couple of years, the average adjusted market capitalization per total resource ounce has fallen to US$26 per ounce from US$43 in early June, and declined as low as US$24 last week. The group average has typically fallen in the range of US$50 to US$75, analyst Michael Curran told clients.

So with valuation levels so much lower, investors are surely hopeful that the bottom has arrived. One factor that could provide a boost is increased M&A activity. Mr. Curran noted that the Aurelian-Kinross and Gold Eagle-Goldcorp deals give him more confidence that more tie-ups lie ahead, particularly if gold prices rise later in the year as RBC forecasts.

“We maintain our view that the Jr. Golds that are successful in advancing their projects towards construction can be rewarded with higher trading multiples and/or become attractive takeover candidates,” he said in a research note.

RBC suggests investors look to names with higher grade deposits and low political risk, highlighting Turkey-focused emerging producer Anatolia Minerals Development Ltd. as its “Top Pick.” Its other favourites are Andean Resources Ltd., Banro Corp., Osisko Mining Corp. and Central Rand Gold Ltd.

Jonathan Ratner