Due to tensions between the U.S., China and Mexico, the S&P 500 Index has fallen 4.4% over the last month, renewing investors’ interest in safe-haven assets such as precious metals.
As a result, gold prices are uptrending again.
The bullion closed at $1,324.25 per troy ounce on the London market on Tuesday, which reflects 0.5% upside from Monday and a 3.1% rise from the average price of $1,283.95 per ounce for May.
Tuesday’s closing price was also up $27.35 per troy ounce, or 2.1%, compared to the cumulative average of $1,296.90 for the year so far.
Since the U.S.'s trade tensions with China and Mexico may go on for some time, there is a chance gold will hit $1,400 an ounce in the coming weeks.
Therefore, in order to benefit from the expected gold bull market, investors should increase their positions in publicly traded gold producers that have proven to be more volatile than the commodity.
Gran Colombia Gold Corp. (TSX:GCM, Financial)(TPRFF, Financial) meets these criteria.
The stock of the Toronto-based operator of gold and silver properties in the mining areas of Marmato and Segovia in Colombia has risen 12% over the past 52 weeks through June 4, outperforming the VanEck Vectors Junior Gold Miners (GDXJ, Financial) exchange-traded fund by 17%. The index is a benchmark for the industry.
The stock is poised to continue performing well, returning to its shareholder margins that will be above the industry average.
Two analysts who were surveyed recommended buying shares of Gran Colombia Gold. They issued an average target price of $5.70 per share, indicating an impressive 110.3% gain over the next 52 weeks.
Besides the expected rise in the price of gold, analysts’ projections are based on the following catalysts.
- A solid balance sheet that GuruFocus scored with a rating of 6 out of 10. As of March 31, the company's cash position was $40.2 million and the total long-term debt amounted to $28.5 million.
- The existence of robust operations, which are comparable to large gold producers like Barrick Gold Corp. (GOLD, Financial) in terms of profitability. Gran Colombia Gold has a trailing 12-month earnings before interest, taxes, depreciation and amortization margin of 23.2% versus the Barrick Gold's margin of 22.1%.
- The release of a preliminary economic assessment, including results of a project's economic viability that technicians of Gran Colombia are assessing at Marmato. As the miner has several operations there, the exploration team is pondering the possibility of building a second major underground mining operation. The PEA decision should be announced before the end of the year. Since the new deposit will produce a yearly average of 125,000 ounces of gold, or about 55% of the top end of the 2019 guidance range of 210,000 to 225,000 ounces, for at least 12 years, the news is sure to boost the share price if it receives adequate promotion.
Gran Colombia also focuses on exploration, development, infrastructure upgrades and construction activities at its Segovia operations. Here, the company is undertaking drilling campaigns to support future production growth through an increase in mineral reserves and a mine life extension. The company will fund the drilling campaign with net proceeds of approximately $13.6 million from the placement of convertible notes with maturity in 2024.
The stock doesn’t appear to be expensive.
After a 12% rise over the 52 weeks through June 4, the closing share price of $2.7 on Tuesday was substantially above the 50- and 200-day simple moving average lines and slightly over the 100-day line. The market capitalization is $130.06 million.
Further, the price-book ratio of 0.48 is below the industry median of 1.62 and the enterprise value-Ebitda ratio of 2.41 is below the industry median of 8.71.
The 14-day relative strength index is 58, suggesting the stock is neither overbought nor oversold.
The closing price on Tuesday was 0.7% above the 52-week low of $2.68 and 2.2% below the 52-week high of $2.76.
On the Toronto exchange, the stock closed at 3.62 Canadian dollars ($2.68) per share on Tuesday with a market capitalization of approximately CA$174.85 million.Â
Disclosure: I have no positions in any securities mentioned.
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