Gold price outlook
On May 27, gold closed at a price of $1,694.60 per troy ounce on the London bullion market and $1,710.70 per troy ounce on the Comex futures contracts, having gained about 11% so far this year.
According to my estimation, the precious metal will likely trade higher in the weeks ahead, potentially hitting $1,800 per troy ounce as it continues to be used as a safe haven asset against elevated volatility in the markets.
For one, the path for the U.S. economy to get out of recessionary conditions could take longer than expected as high amounts of cheap debt and government aid keep underperforming companies afloat rather than allowing better-functioning competitors to increase their market share.
The second factor is heightened tensions between the U.S. and Chinese governments given the Trump administration’s demonstration of its willingness to get involved with China's internal political struggles.
The third factor that creates uncertainty in the financial markets is the development of a Covid-19 vaccine, which may or may not be achieved within the year.
Thus, investors may want to take advantage gold price tailwinds by investing in shares of publicly traded gold miners such as Kirkland Lake Gold Ltd (KL, Financial), B2Gold Corp (BTG, Financial) and Gold Resource Corp (GORO, Financial).
Kirkland Lake Gold Ltd
The Canadian operator with assets in Canada and Australia mined 330,864 ounces of gold in the first quarter of 2020, marking a 43% increase year over year thanks to the contribution of Detour Lake in Ontario, which was acquired last Jan. 31, and higher grades of metal mined in south-east Australia.
Higher output along with a 21% gain in the realized price to $1,586 per ounce of gold sold allowed Kirkland to strongly increase adjusted net profit and free cash flow, although the all-in sustain cost worsened significantly to $776 per ounce sold due to higher spending at Macassa in Ontario. The adjusted net profit rose 57.5% to $179.2 million, or 70 cents per common share, and adjusted free cash flow improved 102.5% to $191.4 million.
Liquidity available on hand measured $531 million as of March 31, and the absence of debt provides ample room to upgrade current gold reserves.
The stock traded at a price of $37.64 per share at close on Wednesday for a market capitalization of $10.4 billion, a price-book ratio of 2.21 (versus the industry median of 1.53), an enterprise value-Ebitda ratio of 8.76 (versus the industry median of 8.79) and a 52-week range of $18.03 to $51.08.
The current share price, which is the result of a nearly 18% rise over the past year, is 16.2% lower than Wall Street's average target price of $43.75. Sell-side analysts recommended an overweight rating for the stock.
B2Gold Corp
The Canadian gold operator with mining activities in Mali, Namibia and the Philippines produced 250,632 ounces of gold in the first quarter of 2020, which was up 25% from the prior-year quarter. The AISC was $695 per ounce of gold sold, which marked a 7% improvement year over year.
As a result of this solid operating performance, which produced an 18% year over year increase in the sales volume to 239,500 ounces, together with a 22.3% rise in the realized price to $1,588 per ounce of gold sold, B2Gold managed to achieve new quarterly records of revenue and operating cash flow.
Consolidated gold revenue grew 44% to $380 million and operating cash flow increased 151% to $216 million. Furthermore, the miner could advance the adjusted net profit tremendously to $99 million, or 10 cents per common share, up 209.4% from $32 million, or 3 cents per common share, in the same quarter of the previous year.
Looking ahead to full year 2020, B2Gold is on track to meet its operating and financial consolidated targets consisting of 1 million to 1.055 million ounces of gold production. The company is currently mining the yellow metal from 6.58 million ounces in probable reserves grading 1.75 grams per ton of mineral on average.
The stock has a market capitalization of $5.24 billion, a price-book ratio of 2.52 (versus the industry median of 1.53), an enterprise value-EBITDA ratio of 6.41 (versus the industry median of 8.79) and a 52-week range of $2.16 to $5.75.
The stock has a buy recommendation rating from Wall Street and an average target price of $6.45, which reflects 27% upside from Wednesday’s closing price of $5.08 per share.
Gold Resource Corp
Based in Colorado, Gold Resource Corporation mines the precious metal from its deposits located in Nevada and Mexico. The operator produced approximately 14,300 ounces of gold equivalent in the first quarter of 2020.
The miner and explorer sold approximately 12,428 ounces of gold at an average realized price of $1,641 per ounce sold, which yielded $28 million in total net sales and $5 million in total cash flows from operating activities in the first quarter.
Gold Resource is returning a portion of free cash flow to its shareholders in the form of a monthly dividend. The company returned a total of 3.1 cents per common share over the last 12 months.
As of March 31, 2020, the balance sheet had $18.4 million in cash available on hand and equivalents. The operator holds about 872,300 ounces of gold equivalent stored in proven and probable reserves grading 3.4 grams of metal per ton of mineral.
The stock has a market capitalization of $285.01 million, a price-book ratio of 1.64 (versus the industry median of 1.53), an enterprise value-Ebitda ratio of 7.51 (versus the industry median of 8.79) and a 52-week range of $2.02 to $6.24.
Wall Street sell-side analysts issued a buy recommendation rating for this stock and have set an average target price of $6.38, which represents a 56.8% growth from Wednesday closing price of $4.07 per share.
Disclosure: I have no positions in any security mentioned in this article.
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