The bounce in the St Barbara Ltd (ASX: SBM) share price is giving hope that the embattled gold miner has turned a corner.
The small cap gold producer jumped 2.5% to $1.49 in after lunch trade and has bounced over 4% since hitting a six-year low last week.
There are a few reasons to explain the underperformance of the St Barbara share price. The sharp drop in the gold price is one, but the miner also struggled with company-specific issues.
Why the St Barbara share price was under pressure
St Barbara withdrew its FY21 guidance as problems at its PNG operations weighed. It also wrote down the value of its Canadian assets due to ongoing production delays.
But improving sentiment towards gold could set the struggling ASX gold miner up for further gains.
Investors have dumped gold shares as the precious metal tumbled from record highs of over US$2,000 to around US$1,800 an ounce.
However, several brokers have recently turned cautiously positive towards the sector after the big sell-off.
Value emerging in ASX gold shares
Morgans is another that sees value emerging in the sector, which has fallen harder than the gold price.
“While the USD gold price was strongest at the beginning of June, in AUD terms the spot gold price peaked in late August above A$2,500/oz before declining slightly,” said Morgans.
“Inflation concerns seemed to subside globally, with high results considered transitory.”
Is the St Barbara share price a buy?
But before you rush in to buy the St Barbara share price, or any ASX gold shares for that matter, be warned that not all stand to benefit equally from a potential rebound in the commodity.
“No two gold miners are the same. Scale of production, jurisdiction and number of operations all factor into the market valuation,” explained Morgans.
“Larger miners provide relatively ‘safer’ optionality to the gold price with production spread across several operations.
“Small producers may offer more leverage to the gold price, or upside from discovery or production growth, but at relatively higher risk.”
Best ASX gold shares to buy now
Looking at the ASX gold shares under its coverage, Morgans picks the Ramelius Resources Limited (ASX: RMS) share price as a standout buy.
Ramelius delivered a record FY21 production result and is well placed to break the record again this year. This means Ramelius could be a safer investment than the St Barbara share price.
“With forward guidance over 9 years, RMS continues to be one of the most open gold producers we see, and we believe upside remains at Edna May and Eridanus,” said Morgans.
The broker’s 12-month price target on the Ramelius share price is $2.08 a share.