Gold price outlook
In the first quarter of 2020, central banks around the world purchased gold in bulk to help stabilize assets as they unroll massive monetary stimulus packages to mitigate the economic effects of Covid-19. According to the “Gold Demand Trends Q1 2020” report from the World Gold Council, which was published on April 30, worldwide central banks added 145 tons of gold to total holdings in the first quarter of 2020, up 34.4% from the 107.9 tons added in the prior quarter.
This trend has contributed to the rise in the price of gold. The price of a troy ounce of gold grew by approximately 11.5% to close at $1,698 on the Comex futures market and $1,702.75 on the London bullion market on May 11.
Thus, several Wall Street analysts are projecting gold prices will hit $2,000 an ounce by 2021. To take advantage of the next rise in the price of the rare earth metal, investors may want to consider the stocks of publicly traded gold mining companies Barrick Gold Corp. (GOLD, Financial), Newmont Corp. (NEM, Financial) and Kinross Gold Corp. (KGC, Financial).
Barrick Gold
The Canadian gold producer recently disclosed a longer-term production plan in which it projects annual output to hit about 5 million ounces over a 10-year period from 2020 to 2029.
Mineral deposits are located in North America, Latin America, Africa and the Middle East, including six world class gold mines yielding 500,000 ounces per year on a 10 years (average) mine life.
First quarter 2020 gold production of 1.25 million ounces (at an all-in sustain cost of $954 per ounce sold) was consistent with full year guidance. Higher gold prices allowed the miner to deliver free cash flow of $438 million (up 200% year over year), adjusted Ebitda of $1.47 billion (up 46.3%) and net debt of $1.852 billion (significantly down from $3.654 billion in the first quarter of 2019). The debt repayment schedule is comfortably manageable, in my opinion, as there are no significant due dates for the next 13 years.
The stock price traded at $26.02 per share at close on Monday for a market cap of $46.59 billion, a price-book ratio of 2.13 (versus the industry median of 1.4) and an enterprise value-Ebitda ratio of 6.16 (versus the industry median of 8.25).
The share price rose by 111.4% in the past year, determining a 52-week range of $11.65 to $28.50.
As of May, Wall Street sell-side analysts recommended two strong buy ratings, one buy rating and one hold rating. The average target price is $26.59 per share.
Newmont
The Greenwood Village, Colorado-based producer of gold has assets in the Americas, Africa and Australia. It remains well on track to complete several ramp-up projects in time, though care and maintenance of several operations forced Newmont to switch off 10% of its mining activities.
Newmont mined 1.5 million ounces of gold (at an AISC of $1,030 per ounce) from its total mineral reserves of 95.7 million ounces in the first quarter of 2020. This production level, which reflects 20% growth year over year, along with higher metal prices, helped deliver a strong 62.7% increase in the adjusted Ebitda to $1.12 billion and 75% growth in the free cash flow to $611 million.
Solid first quarter results, cash proceeds of $1.44 billion from the sale of non-core assets and the successful completion of corporate loan transactions enhanced the financial flexibility of the mining company. However, the priority will continue to be given to the most profitable projects.
The stock price traded at $62.95 per share at close on Monday for a market cap of $50.52 billion, a price-book ratio of 2.32 (versus the industry median of 1.4) and an enterprise value-Ebitda ratio of 8.08 (versus the industry median of 8.25).
The share price rose by 104% in the past year, determining a 52-week range of $29.77 to $66.06.
As of May, Wall Street sell-side analysts recommended two strong buy ratings, nine buy ratings and seven hold ratings. The average target price is $65.17 per share.
Kinross Gold
The Canadian gold mining company has mineral interests in the United States, Brazil, Russia, Ghana and Mauritania. It managed to complete the first quarter of 2020 with a stronger balance sheet.
First quarter gold production dropped by 6.4% year over year to 567,327 ounces as a result of the end of production in Chile and lower than expected output from Brazil, Russia and Ghana. However, Kinross Gold increased its net profit and generated strong free cash flow. Driven by higher realized price per ounce of gold, adjusted net earnings of $127.4 million increased 53% year over year, while adjusted operating cash flow of $418.6 million reflected an impressive 81% increase.
The balance sheet had total liquidity of nearly $2 billion including cash and cash equivalents as well as undrawn line of credit as of March 31. The company has $1 billion in long-term debt, which is not due for the next 14 months.
The stock price traded at $6.90 per share at close on Monday for a market cap of $8.73 billion, a price-book ratio of 1.63 (versus the industry median of 1.4) and an enterprise value-Ebitda ratio of 5.62 (versus the industry median of 8.25).
The share price rose by 118.4% in the past year, determining a 52-week range of $2.72 to $7.25.
As of May, Wall Street sell-side analysts recommended three strong buy ratings, five buy ratings and eleven hold ratings. The average target price is $7.40 per share.
Disclosure: I have no positions in any security mentioned in this article.
Read more here:
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