Many analysts are worried about a rise in the inflation rate in the U.S., which will be triggered by the massive funds governments are injecting into the economic system to help households and businesses during the Covid-19 crisis. The Federal Reserve sees higher inflation on the horizon, but only temporarily.
One thing is certain though, the U.S. has gone further into debt, and it is not the only country doing so. Since the national debt of many countries worldwide has already exceeded the warning level for the risk of default, they could end up not being able to honor their financial commitments.
One way to protect against higher volatility from these uncertain conditions is to purchase shares of gold miners. The safe haven asset stands to gain during periods of uncertainty and, being usually more volatile than the metal itself, gold producers offer a leverage price potential on investor enthusiasm.
Thus, investors may be interested in Agnico Eagle Mines Ltd (AEM, Financial), DRDGold Ltd (DRD, Financial) and Golden Star Resources Ltd (GSS, Financial). In my opinion, since these stocks have underperformed the VanEck Vectors Gold Miners Exchange traded-funds index (GDX, Financial) so far this year, they are undervalued and have stronger rebound potential.
Agnico Eagle Mines Ltd
Looking ahead to the next 52 weeks, Wall Street expects Agnico Eagle Mines' share price to increase by 61.5% from Thursday's closing price of $56.30 to the average price target of $90.94 per share.
Based in Toronto, this Canadian gold producer targets to mine nearly 2.05 million ounces in 2021, up nearly 18% from 1.74 million ounces mined in 2020. The precious metal will be sourced from mineral reserves hosting 24.1 million ounces of gold with a grade average of 2.15 grams per ton of ore. The precious metal will be mined at total cash costs of $731 per ounce, marking a significant improvement from $775 in 2020.
The company plans to run exploration activities on total mineral resources of 348 million tons as of Dec. 31, 2020.
The company estimates to spend approximately $803 million as capital expenditures in 2021.
The stock has a market capitalization of $13.69 billion, an enterprise value-to-Ebitda ratio of 9.59 (versus the industry median of 12.12), and a price-book ratio of 2.39 (versus the industry median of 2.48).
The share price currently trades 6.5% lower than the middle point of the 52-week range of $31 to $89.23 and is about 12% below the 20-day simple moving average. The 14-day Relative Strength Index of 32.3 indicates that the stock is not far from oversold levels.
DRDGold has an average price target of $13.33 per share, which mirrors a 46.2% upside from Thursday's closing price of $9.12.
Based in Johannesburg, this South African gold operator is producing gold from the treatment of surface tailings as a result of previous mining activities conducted by other companies in the Witwatersrand basin in the South African province of Gauteng.
The company aims to produce 185,000 ounces of gold in full fiscal year 2021, which will mark a 6.1% increase from 174,385 ounces made in the previous full fiscal year ended on June 30, 2020. The company will sustain an operating cost of nearly $1,100 per troy ounce.
The stock has a market capitalization of $779.85 million, an enterprise value-to-Ebitda ratio of 7.77 (versus the industry median of 12.12) and a price-book ratio of 4.12 (versus the industry median of 2.48).
Currently, the share price is 13.6% lower than the middle point of the 52-week range of $3.06 to $18.05 and is trading 7.7% below the 20-day simple moving average. The 14-day Relative Strength Index of 37.3 indicates that the stock is not far from oversold levels.
Golden Star Resources Ltd
With regard to Golden Star Resources' stock price, sell-side analysts project an average target of $5.77, which would reflect an 87.3% gain from Thursday's closing price of $3.08.
Based in Toronto, this Canadian miner is the owner and the operator of an underground gold deposit located in Ghana, West Africa. From its total mineral reserves accounting for 18.41 million tons of ore grading 2.38 grams of gold per ton, the company aims to extract about 165,000 to 175,000 ounces in full-year 2021 versus 167,600 ounces mined in full year 2020. Golden Star Resources estimates an all-in sustain cost of $1,003 per ounce of gold produced.
The exploration team is conducting mineral studies to develop 48.81 million tons of mineral resources into the higher category of mineral reserves. Currently, these mineral resources contain precious metal according to an average grade of 2.34 grams per ton of ore. This means that holding current operating rates constant, the company has at least 20 years of production ahead. Explorations will absorb up to $15 million in 2021.
The stock has a market capitalization of $341.70 million, an enterprise value-to-Ebitda ratio of 3.24 (versus the industry median of 12.12) and a price-book ratio of 82.77 (versus the industry median of 2.48).
The share price places 12.75% below the middle point of the 52-week range of $1.85 to $5.20 and stands 12.2% lower than the 20-day simple moving average. The 14-day Relative Strength Index of 37.3 suggests that the stock is not so far from oversold levels.
Disclosure: I have no positions in any security mentioned in this article.
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