Why the Ramelius share price is leading the gold sector higher today

ASX gold miners have joined in the broader market rally this morning. But it’s the Ramelius Resources Limited (ASX: RMS) share price that’s capturing attention.

Shares in the mid-tier gold miner surged 7.3% to $2.28 at the time of writing. It may soon break into record territory given how close it is to the $2.30 high it hit in July.

In contrast, shares in other gold stocks are left far behind even as the sector is outperforming the S&P/ASX 200 Index (Index:^AXJO). The Evolution Mining Ltd (ASX: EVN) share price jumped 2.2% to $5.64 and the Northern Star Resources Ltd (ASX: NST) share price added 1.7% to $13.38.

The top 200 benchmark reversed early losses to trade 0.5% stronger in late morning trade.

Why the Ramelius share price is outperforming

There are two possible reasons to explain the big outperformance of the Ramelius share price. One is the ongoing excitement from its inclusion into the ASX 200 club on 21^st of September.

I believe the stock isn’t as widely held by funds that are benchmarked to or track this index, unlike other inclusions like the Zip Co Ltd (ASX: Z1P) share price.

This means fund managers may be loading up on the stock at a time when shareholders have little incentive to sell given gold’s outlook.

Broker upgrades RMS valuation

The other reason is the target price upgrade made by Morgans. The broker just increased its fair value estimate on the stock to $2.49 from $2.31 a share and reiterated its “add” recommendation.

The uplift in the price target is primarily driven by the rallying gold price. The broker changed its forecast for the precious metal to US$1,900 from US$1,700 an ounce.

The yellow metal gained more than 20% over the past year and hit a record high of just over US$2,000 an ounce last month.

Golden run for the precious metal

It’s since pulled back a little to trade at US$1,921 an ounce, although I think it will return to its highs over the next 12-months.

My bullish view comes from the record level of stimulus and high-levels of uncertainty in the post COVID-19 world.

This means Morgans may need to upgrade its price target again if this comes to pass.

Earnings growth drivers

“We see upside in the share price, based on the current AUD gold price and modest exploration success,” it said.

“We also expect good news from the company as they progress exploration activities and feasibility studies in the current year, which could underpin further extension to their life of mine plans.”

Another growth lever Ramelius can pull on is acquisitions. The miner holds around $165 million in cash that it can use to fund an asset purchase.

Let’s hope management spends that wisely.

More reading

• Afterpay, Zip founders team up for ‘Aussie Robinhood’ app
• Why Biotron, Fortescue, Ramelius, & Temple & Webster are storming higher
• ASX 200 up 0.5%: CSL signs COVID-19 vaccine agreements, big four banks charge higher
• 4 of the best ASX shares to buy before 2021
• More radical action from RBA likely after Victoria’s extends harsh lockdown

Brendon Lau owns shares of Evolution Mining Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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