fbpx

8 Ways To Invest In Gold Miners

Getty

In addition to its role as a “safe haven” during times of economic or geopolitical tension, gold also tends to rise during periods of low and declining interest rates. Several leading experts and contributors to MoneyShow.com are optimistic about the outlook for gold and highlight their favorite ideas in the sector.

Sean Broderick, Weiss Ratings

Gold recently blasted to a six-year high. Why? Negative interest rates. About $15 trillion of government bonds worldwide now trade at negative yields. The amount of negative-yielding debt has tripled since last October.

How is that possible? Well, central banks around the world engage in unprecedented monetary easing, which forces rates lower and lower. The world’s markets are now addicted to negative rates. It’s the crack cocaine of capital. The high-speed chicken feed of high finance.

So, what does this have to do with the price of gold? One of the complaints about gold is that it doesn’t pay interest. Well, if bonds don’t pay interest, gold starts to look much more attractive. Indeed, gold has been tracking the amount of negative-yielding debt very closely.

Gold’s fast and furious breakout is changing the game. My previous target on gold was $1,609, but the yellow metal just gave me a new target. Now, it is $1,789. This means any pullbacks in gold can be bought. Big time!

And as bullish as gold looks, gold miners look even better. That’s because the miners are leveraged to the underlying metal. Select miners could easily double, triple or quadruple the move in gold itself.

You can do the hard work of researching individual stocks. Or you can just buy the VanEck Vectors Gold Miners ETF (GDX). It’s a basket of leading gold miners. And, like gold and individual miners, the VanEck Vector Gold Miners exchange-traded fund is on the launch pad. And it’s got 15 trillion reasons to power higher.

Vivian Lewis, Global Investing

Barrick Gold (GOLD) of Canada just reported its latest quarterly earnings; the company produced 27% more gold in its Q2 — and will produce even more now that the way is clear for it to acquire the rest of Acacia Mining which operates in Tanzania after paying a fine of ~$300 million for allegedly underpaying its taxes.

Its Q2 income hit $223 million vs. a $76 million loss in the prior Q2. New production came mainly from Mali and Argentina. Our position in the stock is up over 36% year-to-date. Adjusted income hit $154 million or 9¢ per shares vs. prior year Q2 level of $81 million and 7¢ a share. (There were more shareholders thanks to its buying Randgold.)

It was boosted by Goldman Sachs and Citigroup raising their 6-month gold price forecast to $1600/oz. Barrick now expects to produce 5.6 million oz. of gold this calendar year, helped also by its mining joint venture with Newmont in Nevada. It may divest part of its 50% stake in Kalgoorie mine in Oz, perhaps to the other owners, Newmont. It also wants to sell to a local gold firm a stake in its Senegal Massawa mine.

New CEO Mark Bristow, who came on in January — after it bought Goldcorp — said it was also exploring for a large Canada mine because it is “underinvested” in its homeland and may develop copper mining in Congo Kinshasa.

Meanwhile, Q2 results were slightly below forecasts according to Trefis Research. With markets in disarray over bond inversion and political risks a gold mine such as buy-rated Barrack is the answer.

Michael Murphy, New World Investor

Coeur Mining (CDE) reported June quarter revenues of $162.1 million, down 4.5% year-over-year but on the $161.2 million consensus. Pro forma earnings of 11¢ a share were in line.

They reaffirmed full-year production guidance for 334,000 to 372,000 ounces of gold, 12.2 million to 14.7 million ounces of silver, 25 million to 40 million pounds of zinc and 20 million to 35 million pounds of lead.

During the quarter, they continued to improve the balance sheet by paying down $82.0 million of debt, leading to a 19% quarter-over-quarter reduction in total debt. At June 30 they had $53.0 million drawn under their $250.0 million senior secured revolving credit facility, about 61% lower compared to the prior period.

Management continues to do a great job of improving operations, reducing costs, and cleaning up the balance sheet.The primary risk is that prices of precious metals fall due to US dollar strength. Meanwhile, we rate Coeur Mining as a “buy” under $10 per share for a $20 target price when gold gets over the $1,600 an ounce level.

Gavin Graham, Internet Wealth Builder

Agnico Eagle (AEM) is a senior Canadian gold mining company which operates eight mines in Canada, Finland, and Mexico. It also has exploration and development activities in each of these companies as well as the U.S. and Sweden.

Gold production for the second quarter was 412,315 oz. at an all-in sustaining cost (AISC) of $953 per oz. Adjusted net income was $22.7 million ($0.10 per share) compared to $5 million ($0.02 per share) the year before. For the first half, net income was up 29.9% to $64.8 million ($0.28 per share) compared to $49.9 million ($0.21 per share) as higher gold prices offset lower gold volume produced.

The major achievement in the second quarter was the May 19 announcement of commercial gold production at the Meliadine mine in Nunavut in the Arctic. Pre-commercial production at the mine totaled 47,283 oz. and the forecast production for 2019 is 230,000 oz., including pre-commercial output. The mine came in at a cost of $830 million, $70 million below its forecast budget, another example of Agnico’s efficient operations.

The other new mine in Nunavut, called Amaruq, is expected to declare commercial production in the third quarter and to produce 125,000 oz. this year. These two new mines will help Agnico achieve its forecast of 1.75 million oz. of production this year at an AISC of $875-925 per oz.

Agnico pays a quarterly dividend of $0.125, an increase of 6.3% from 2018, giving it a yield of 0.85%. With the two new Nunavut mines in full production for 2020, and potential upside from its purchase of the Malartic exploration assets in Quebec, Agnico will experience growth in production towards its long-term goal of two million oz. per annum. The stock is a buy.

John Buckingham, The Prudent Speculator

We continue to recommend the shares of Newmont Goldcorp (NEM). Indeed, we wrote in February 2012 when we first recommended Newmont, “There’s gold in them there hills…,” and the amount of presumably gold-laced hills grew recently with the company’s $10 billion merger with Goldcorp, pushing the consolidated firm to the top spot worldwide measured by gold production.

The combined company posted $0.12 of adjusted EPS for Q2, compared with the consensus estimate of $0.23. Though shares retreated a few percentage points, they remain up 10% or so this year, propelled by higher average realized gold prices and increases in fair value estimates.

While there are still integration costs on the horizon, CEO Gary Goldberg said that NEM remains on track to deliver $365 million of additional annual cash flow as a result of the merger.

Newmont estimates that it can achieve annual gold production between 6 million and 7 million ounces, while copper and other minerals can add another $1.5 billion of annual revenue. We continue to like NEM and the leveraged exposure to gold, which has been on the rise of late, it provides. Shares yield 1.5%.

Mike Larson, Under-the-Radar Stocks

Basically, while we’re not in a recession yet, indicators are piling up suggesting we will be next year. As a defensive position, we continue to recommend Gold Resource Corp. (GORO).

It’s starting to perk up along with metals prices and should continue to do so. After all, gold is a great “chaos insurance” investment in times of increased volatility and risk like we have today.

Gold Resource generated a second-quarter profit of $1.8 million, or 3 cents per share. But that was a sharp decline from a year ago due to a large increase in production and general expenses, as well as somewhat lower revenue.

That said, the company is beginning to ramp up gold production at its Isabella Pearl mine in Nevada. That should help support results going forward, and could lead to dividend payout increases over time, according to CEO Jason Reid.

Gold wins in an ultra-low-rate environment because its 0% yield beats the negative yield offered by trillions of dollars of bonds. It also wins in a pre-recessionary, higher-volatility environment like like this one.

Mike Cintolo, Cabot Top Ten Trader

Anglogold (AU) is also  one of the strongest in the sector, though admittedly it’s harder to touch and feel than some other precious metal names — the company operates mines in South America, Africa and Australia, with one of its big growth projects (which should begin producing gold later this year) is located in Ghana.

The big story here remains the price of gold, of course, but also helping the cause is Anglogold’s mid-year report, which was solid, with all-in costs of improving to around $1,000 per ounce, while sales so far in the third quarter have brought in an average of $1,414.

Production-wise, Q2 output was up 7% sequentially, and more of that should be on the way in the second half of the year as some of its mines outperform expectations.

Throw in the prospects for continued belt tightening (CapEx should ease as the aforementioned growth projects move into production) and there’s no reason cash flow shouldn’t surge going forward if bullion stays elevated — analysts see earnings rising to $1.80 per share next year.

Kirkland Lake (KL) remains one of the leaders, as it’s actually seen sales and earnings kite higher in recent years thanks to higher production from all five of its mines, but especially its two core operations, Fosterville (in Australia) and Macassa (in Toronto).

And that trend is continuing this year; in Q2, total production boomed 30% thanks to a whopping 82% ramp from Fosterville, even as costs remain in check. (Full Q2 results will be out tomorrow morning.)

The only hitch here is that, following a step-function increase this year, output will likely be relatively flat over 2020 and 2021 before taking another leap as production ramps at Macassa and (to a lesser extent) Kirkland’s Holt Complex in Cananda in 2022.

Even so, if precious metals prices continue to ramp, there’s no doubt this company will see its already large free cash flow surge and probably making next year’s earnings estimates (just 2% projected growth) very conservative. Of course, if gold prices implode, all bets are off, but the odds favor higher prices ahead.

Also interesting

Leave a Reply