Why Lundin Gold Could Outperform

Gold production will rise as Fruta del Norte ramps up

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Mar 11, 2020
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Gold price outlook

Due to headwinds created by a stronger U.S. dollar, gold traded lower on Tuesday, losing 1.2% to trade at $1,652.30 per troy ounce on the Comex futures market and $1,655.70 per troy ounce on the London bullion market. Year to date, the precious metal is still abundantly in positive territory, having recorded a nearly 6% gain. 

Gold serves as a hedge against elevated volatility, which is why investors are flocking to it in the wake of fears about the novel coronavirus (Covid-19) outbreak. As long as markets remain hectic, the yellow metal will likely keep on gaining in value.

Lundin Gold

Investors may want to take advantage of higher gold prices by increasing their holdings in publicly traded gold production companies. One of these stocks is Lundin Gold Inc (

FTMNF, Financial), a Canadian gold developer and miner with mineral properties in Ecuador.

Lundin has topped the Van Eck Vectors Gold Miners exchange-traded funds (GDX), which is the benchmark for the gold mining industry, by 3.5% over the last six weeks and by 14.14% year to date.

Furthermore, as the chart illustrates below, Lundin has also outperformed the benchmark for the mining industry dramatically over the past year, posting an impressive 91% while gold prices rose nearly 28%.

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Objectively, the share price ($7.76 as of March 10) is not cheap, as it trades above the 50-, 100- and 200-day simple moving average lines and is over the middle point of the 52-week range of $3.58 to $10.32.

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The stock has a market cap of around $1.76 billion, a price-book ratio of 3.77 versus the industry median of 1.36 and an enterprise value-Ebitda ratio of -94.51 compared to the industry median of 8.28.

The 14-day Relative Strength Indicator of 46 suggests that this stock is neither oversold nor overbought.

Wall Street sell-side analysts recommend an overweight rating for shares of Lundin Gold Inc with an average price target price of $12 per share, which reflects a 55% upside.

Lundin mines the yellow metal at Fruta del Norte in Ecuador, where it recently achieved commercial production. As of April 30, 2016, the ore deposits together hold about 4.9 million ounces of gold equivalent in mineral reserves. With the next report for the first quarter of fiscal 2020, the company expects to update its shareholders with fresh data on the mineral reserves at Fruta del Norte. In 2019, the Ecuadorian underground mine produced 28,678 ounces of gold in concentrate and doré and earned total revenues of $20.9 million from the sale of gold concentrate.

Looking ahead to full-year 2020, the company plans to support mining activities and the development of the Fruta del Norte mineral project with $75.7 million in funds available on hand. Last year's investing and financing proceeds of about $5.6 million will also be of help to hit the company’s target.

Disclosure: I have no positions in any security mentioned in this article.

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