Gold price outlook
Year-to-date, the price of gold is up nearly 14%, closing at $1,737.95 per troy ounce on the London bullion market and $1,748.60 per troy ounce on the Comex futures market on May 19.
Thoughout March, higher than normal volatility due to the Covid-19 pandemic served as a catalyst to rising gold prices. Investors may also worry about higher inflation given massive government monetary stimulus and the printing of new currency, prompting them to purchase the precious metal as a safe haven asset. Such an environment makes gold shine brighter than bonds and other fixed-income securities.
In order to take advantage of the gold bull market that is likely to occur, investors may want to purchase shares of publicly traded producers. My picks top picks in the gold mining industry are Coeur Mining Inc (CDE, Financial), Iamgold Corp (IAG, Financial) and Endeavour Mining Corp (EDVMF, Financial).
Coeur Mining
Coeur Mining Inc is a Chicago-based small producer with mineral assets located in the U.S. and Mexico. The company mines the rare earth metal from proven and probable reserves accounting for 2,564,000 ounces.
In the first quarter of 2020, these mineral deposits produced 85,077 ounces of gold, which reflected an 8.6% increase year-over-year, contributing 74% to consolidated revenue of $173.2 million. The yellow metal was sold at an average of $1,490 per ounce. The company also mined silver, zinc and lead, with grey metal comprising 26% of consolidated revenue.
Strong performance from operating activities in Mexico and Alaska, along with higher precious metal prices, allowed Coeur Mining to improve the adjusted Ebitda by 75.8% year-over-year to $46.6 million in the first quarter. The miner also bolstered its cash balances, drawing $100 million from an available $200 million in revolving credit facilities. The new debt matures in October 2022.
The stock price was trading at $5.86 per share at close on Tuesday for a market cap of $1.43 billion, a price-book ratio of 2.15 (versus the industry median of 1.44) and an enterprise value-to-Ebitda ratio of -11.88 (versus the industry median of 8.84).
The share price rose by nearly 100% in the past year, determining a 52-week range of $1.98 to $8.29.
As of May, Wall Street sell-side analysts recommended one strong buy rating, four buy ratings and four hold ratings. The average target price is $5.94 per share.
Iamgold Corp
Iamgold is a Canadian mid-tier gold producer with gold mining activities in Burkina Faso, Suriname and Canada. The company also holds development projects and various exploration ventures in West Africa and the Americas.
The mining company mines gold from total proven and probable attributable reserves of 16,706,000 ounces grading 1.2 grams of metal per ton of mineral.
In the first quarter of 2020, Iamgold produced 170,000 ounces of attributable gold, down 1.7% from the comparable quarter of 2019, at an all-in sustain cost (AISC) of $1,230 per ounce of metal sold, up 12% from $1,103 per ounce reported in the first quarter of 2019.
Despite a 10.7% year-over-year fall in gold sales volumes to 159,000 ounces, a 22.6% year-over-year rise in gold prices to $1,603 per ounce enabled the miner to post an impressive 400% growth in operating cash flow to $44 million.
For full year 2020, the company now guides for a lower gold output range of 685,000 to 740,000 at higher AISC of $1,195 to $1,245 per ounce. Initially, the miner planned to mine between 700,000 and 760,000 ounces at an AISC of $1,100 to $1,150.
The stock price was trading at $3.79 per share at close on Tuesday for a market cap of $1.84 billion, a price-book ratio of 0.82 (versus the industry median of 1.44) and an enterprise value--to-Ebitda ratio of -49.49 (versus the industry median of 8.84).
The share price rose by 48% in the past year, determining a 52-week range of $1.44 to $4.17.
As of May, Wall Street sell-side analysts recommended one strong buy rating, six buy ratings and six hold ratings. The average target price is $7.65 per share.
Endeavour Mining Corp
Headquartered in London, Endeavour Mining is an intermediate producer of gold, holding mining activities in Mali, Burkina Faso and the Ivory Coast.
The miner produces gold from proven and probable mineral reserves accounting for 8 million ounces grading 1.86 grams of metal per ton of ore, which could potentially be increased through explorations worth an estimated 6.9 million ounces.
In the first quarter of 2020, Endeavour Mining produced 172,000 ounces of gold, reflecting a 42% increase year-over-year. It sold gold at an average price of $1,546 per ounce, reflecting a 24% rise from the same quarter of 2019.
As a result of this strong performance of operating activities, Endeavour Mining achieved 450% growth in operating cash flow to a record $126 million, enabling a $55 million reduction in net debt to $473 million as of first quarter of 2020.
The stock price was trading at $22.99 per share at close on Tuesday for a market cap of $2.51 billion, a price-book ratio of 3.47 (versus the industry median of 1.44) and an enterprise value-to-Ebitda ratio of 13.54 (versus the industry median of 8.84).
The share price rose by 62% in the past year, determining a 52-week range of $11.02 to $23.90.
As of May, Wall Street sell-side analysts recommended eight buy ratings. The average target price is $25.61 per share.
Disclosure: I have no positions in any security mentioned in this article.
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