Gold is rising again. The bullion closed up 95 cents an ounce to $1,227.05 on the London market on Thursday. But the precious metal is still below its level at the beginning of November of $1,231.15. Compared to the prices the market made early 2018, the commodity went deep down losing 8.3%.
Gold Futures for December 2018 (GCZ8) also jumped 0.18% to $1,228 per troy ounce on Wednesday. But the financial instrument lost 0.6% since the beginning of November and depreciated 6.2% so far this year. So, also on the market of the contract futures gold needs to work hard to get back to the top.
If the U.S. dollar continues trending higher, gold above $1,325 an ounce again is chasing a chimera. This is because the relationship between the U.S. currency and gold is negative. Current macroeconomic factors make us think that the relationship is not going to swap any time soon. Therefore, the sole impetus to the price of gold may come from the next hike in the interest rates that the Fed is expected to do before the end of 2018.
Starting then, the commodity should commence rising again, and to benefit, investors may want to consider increasing publicly traded gold mining companies.
OceanaGold Corp. (TSX:OGC) is a good candidate.
Investors should consider this miner because it has outclassed most of its competitors with an impressive trailing 12-month Ebitda margin of 52% of net revenues versus an industry median of 24% when gold averaged $1,280.7 an ounce. That has been possible thanks to highly profitable operations that OceanaGold Corp. is running at its mineral properties, which are the Haile Gold Mine located in the U.S., the Didipio gold-copper mine located on the island of Luzon in the Philippines and the Macraes Goldfield and Waihi Gold mines situated in New Zealand.
In the third quarter of 2018 Haile produced 28,600 ounces of gold, Didipio nearly 32,800 ounces of gold and about 4,300 tons of copper, Macraes made 50,000 ounces and Waihi delivered 26,600 ounces of gold. Thanks to the rising production, the invoiced amount of metal sold increased nearly 30% year over year up to $186.8 million in the third trimester of 2018. OceanaGold Corp. posted GAAP earnings of 3 cents per share but missed consensus by 1 cent, producing a negative surprise of 25%.
Nearly 90% of total revenues is derived from the production and sales of gold. Looking ahead, the company is targeting production ranging between 515,000 ounces and 545,000 ounces at an all-in sustain cost of $725 to $775 per ounce of metal sold. The all-in sustain cost is also low if we consider that Barrick Gold Corp. (ABX) – the world’s largest gold producer – is producing the yellow metal at an AISC of $765 to $815 per sold ounce.
OceanaGold Corp. also explores for mineral deposits and develops the assets it acquires. Thanks to its robust operations, the Australia-headquartered mining company reduced by 23% its total debt position to about $180 million during the third trimester of 2018. Further, a total liquidity of nearly $140 million will be enough to assure that its operations will run properly and metallic projects will develop. Organic growth opportunities continue advancing in New Zealand where the company aims to accomplish 10-year mine life extension target at the Waihi mine and to prolong the life of operations at Macraes mine as well.
Over the last 12 months, OceanaGold Corp. produced a levered free cash flow of $107.03 million, of which a fraction of $30.95 million was allocated on the payment of dividends.
The forward dividend yield is 1.39% according to the price of Canadian dollars 4.04 ($3.04) per share at close Thursday on the Toronto Stock Exchange.
The stock – as seen in the below picture from Investing.com – is not cheap because the share price at close Thursday is above the 50-, 100- and 200-day simple moving average lines.
Further, the share price is just 4% from the 52-week high of approximately $3.15 and 38% off the 52-week low of approximately $2.20.
Source: Investing.com
As a result, I would wait for any significant weakness in the share price in order to take some profit off the table since the average analyst is predicting the price will hit a target of $3 per share within the next 52 weeks.
The most near-term catalyst is the Haile mine where the introduction of new equipment expected for the first part of 2019 will significantly drive the production growth.
Disclosure: I have no positions in any securities mentioned.
