Gold bullion closed at $1,293.90 per troy ounce on Friday on the London market, reflecting a 0.9% increase since the beginning of 2019. The cumulative average is $1,287.49 an ounce year to date, which, compared to the cumulative average of $1,268.49 for 2018, represents an upside of 1.5%.
Gold is rising and a lot of its investors think this uptrend may continue throughout the year.
If you are very positive about gold steadily trading above $1,350 an ounce in 2019, then you should consider increasing your exposure to changes in the price of the commodity. A way to do so is by increasing the number of good gold miners in your portfolio or adding to positions you already own.
The question is, which stocks should you buy? Even though performance is not guaranteed, I would suggest going for stocks that outperformed the Van Eck Vectors Gold Miners (GDX, Financial) exchange-traded fund when the bullion was uptrending.
Usually, stocks that outperform the index are those whose operations are more profitable than the average peer. A metric to measure such performance is the earnings before interest, taxes, depreciation and amortization ratio.
For my screening, therefore, I requested an EBITDA margin of at least 35% because such criteria will increase the odds of ending up with a good player. The industry median is 26% to 27%.
St. Barbara Ltd. (ASX:SBM, Financial) is a good player in the industry. The Melbourne, Australia-based gold mining company has produced an EBITDA margin of 56.02% over the past 12 months of operations through the fourth quarter of fiscal 2018. The company produced 403,089 ounces of gold, reflecting a 5.8% increase year over year, and sold 400,956 ounces, reflecting 5.5% growth year over year. The average realized price was 1,691 Australian dollars ($1,212.05) per ounce of gold sold. The all-in sustaining cost was competitive at AU$891 per ounce of metal sold.
Gold increased 3.2% to a cumulative average of $1,297 per troy ounce for the 12 months through second quarter of 2018 from the cumulative average of $1,257 per troy ounce for the comparable prior-year period.
The Yahoo Finance chart shows the stock has outperformed the Van Eck Vectors Gold Miners ETF by 67.3%.
Further, Reuters.com is indicating that St. Barbara's EBITD margin for the past five years averaged 42.04% versus an industry median of 11.36% and the sector median of 20.98%.
St. Barbara is producing the yellow metal from the Gwalia underground mine in Western Australia and the Simberi gold mine in Papua New Guinea.
For fiscal 2019, the miner is forecasting gold production of 365,000 ounces to 385,000 ounces, representing a 3.45% improvement from the previous guidance. The AISC should stand at around $1,075 per ounce of metal sold, which, in this case, is down from initial guidance of about $1,064 per ounce and from full-year 2018.
However, the rising commodity should more than offset higher costs.
The Yahoo Finance chart shows after a nearly 20% increase for the 52 weeks through Jan. 25, the closing share price of AU$4.48 on Friday was above the 200- and 100–day simple moving average lines but near with the 50-day line. The 52-week range is AU$3.27 to AU$5.28. The market capitalization is AU$2.35 billion.
The price-book ratio is 3.50 versus an industry median of 1.74 and the enterprise value-to-EBITDA ratio is 5.78 versus an industry median of 9.3. The 14-day relative strength index of 48 suggests shares of St. Barbara are neither overbought nor oversold.
The company has no debt and approximately AU$343 million in cash on hand and short-term securities, including deposits. The operating cash flow was approximately AU$315.7 million for the last 12 months through June 30, of which about 60% was levered free cash flow.
Despite volatility in the gold market, the company is increasing operating and free cash flows. The first item has grown 151% on average and the second item has increased 140% every year for the past five years.
Capital expenditure is decreasing. For 2019, the miner predicts a sustaining capital expenditure of AU$57 million, growth capital expenditures of AU$62.5 million and expenditures for exploration activities to average AU$27.5 million.
The company is allocating part of its free cash flow to dividends. The last quarterly dividend was 8 cents, which was a 100% increase from the previous distribution, for a forward dividend yield of 2.68%.
Disclosure: I have no positions in any securities mentioned in this article.
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