FN Media Group Presents OilPrice.com Market Commentary
London – August 22, 2019 – Another trade war could be around the corner. The perfect time for investors to hedge. And, like magic, gold prices are up: the gold index hit a six-year high on August 1.
Gold miners are having a stellar year. And even if things don’t turn south for the market, adding gold to your portfolio is a great way to diversify assets and hedge against potential downturns. Mentioned in today’s commentary includes: Barrick Gold Corporation (NYSE:GOLD), Newmont Goldcorp (NYSE:NEM), Franco-Nevada (NYSE:FNV), Kirkland Lake Gold (NYSE:KL), Pan American (NYSE:PAAS).
Here are six trends gold investors should consider:
Go Big Or Go Home
The Big Kahuna—Barrick Gold Corporation (NYSE:GOLD) is the world’s most profitable gold company, with five of the ten largest gold mines in the world.
In terms of sheer size, the mega-merger of Newmont and Goldcorp has Barrick beat. But don’t count this company out. Barrick has risen 25% since June, on the back of rising gold prices and strong demand. That jump means Barrick has grown 54% over the last year, blowing its competitors out of the water.
Gold-watchers pegged Barrick as the company to beat last June—thanks to a strong balance of revenue to debt and production which has steadily increased, thanks in part to the acquisition of Randgold and a joint venture with Newmont in Nevada. And earnings estimates for Barrick continue to climb.
Given its strong position and sterling credentials, Barrick makes for an excellent hedge against downturns elsewhere in the market.
Off The Beaten Path
The world’s newest gold rush is taking place where you’d least expect it. Everything started when artisanal miners found a couple of large gold nuggets. One nugget weighing 1kg and worth $45,400, and another nearly three times the size—worth $122,500. And these nuggets are just the beginning…
The mine where they were found has huge potential, with visible gold extending from the surface all the way down to 200 meters. It is sitting on one of the largest gold belts in the world, making it no surprise that African Gold Group’s (AGG.V; AGGFF) Kobada mine in southern Mali is drawing so much attention.
The Kobada Mine is located in a region of West Africa that has just become the world’s largest gold producing area—overtaking gold giant South Africa for the first time.
AGG initially shot for a 50,000 oz/year haul from Kobada, but now it’s aiming for twice that—100,000 oz/year from a total deposit expected to exceed more than 2.2 million ounces. And to top it all off, Kobada has so far only focused drilling on less than 10% of its perspective concessions.
At current prices, that’s $3.1 billion in gross revenue—all for a company with a tiny $12 million market cap.
Gold investors are already shifting their attention to West Africa—the region is stable, labor costs are low, and licensing takes only a few months (unlike North America, where acquiring licenses and permits can take 5-7 years).
The interest is turning the area around Kobada into a mining hotspot. According to Mining Intelligence, 61 new assets are in production or construction stages, with 24 assets undergoing economic assessments…and a colossal 367 assets in exploration.
All of this is good news for AGG, which has been able to raise fresh funds for its Kobada operation.
The team at AGG (AGG.V; AGGFF) is a rogue’s gallery of mining industry professionals and financial whizzes who have spun iron ore into gold for decades…and are ready to do it again at Kobada. Two directors, Sir Sam Jonah and Bruce Humphrey, have a hundred years of combined experience working the finances for mining operations.
Working the heavy machinery is mining engineer Danny Callow. Callow served as the mining head for Glencore’s Africa Copper division, where he built and operated a number of copper and cobalt operations in Africa to more than 400,000t per year including building the world’s largest cobalt mine. But the real news here is Stan Bharti, the company’s new CEO. With thirty years of experience and a jaw-dropping resume, Bharti at the helm means AGG’s future looks extra bright.
Under Bharti’s direction, several mining companies uncovered 20 million oz of gold, more than 3 billion tonnes of ore, amassing $3 billion in investment capital.
Plus, Bharti’s got an eye for changes in the gold market. He correctly predicted prices would spike in the mid-1990s, and again after 2003. He took a small company in 2008, at the height of the global financial crisis, and spun it off into a deal worth $500 million.
With Bharti in charge and the Kobada mine close to entering operation, AGG is a stock to watch.
Two of the world’s largest gold companies merged earlier this year, creating Newmont Goldcorp (NYSE:NEM), a gold giant and one of the strongest gold stocks around. The acquisition has caused the stock’s growth to lag—Newmont has seen only a minor bump of about 2.2%, next to Barrick’s fantastic 53% growth since September 2018.
Plus, it could take some time for those assets to start paying off—Newmont’s management thinks it could take up to three years for some of Goldcorp’s mines to reach optimal levels of production. But that doesn’t detract from its strong earnings position. Revenue in Q2 of 2019 reached $2.26 billion, up from $1.66 billion the previous year.
Production also went up—Newmont dug up 1.5 million oz of gold in Q2, the highest quarterly haul in years.
Still, it’ll take some time for this new mega-firm to digest its new acquisitions. Part of that transition will be a leadership swap—after seven years, CEO Gary Goldberg is stepping down to make way for Tom Palmer, COO since 2016.
Higher gold shipments from Goldcorp assets means Newmont’s revenue should increase by about 45% in 2019 from last year’s level. The gold assets should also insulate Newmont from volatility in the copper market, which has taken a bite out of its earnings in the last few years.
Plus, Newmont’s joint venture with arch-rival Barrick seems to be working for both companies—assets in Nevada should pay big dividends
The Streaming Play
Franco-Nevada (NYSE:FNV) isn’t a miner per se—the company makes its living off of gold royalties and streaming, and holds interests in platinum group metals and other assets. In other words: rather than mine, FNV finances the mines of other companies, in return for an easy share of the profits.
Strong demand for gold and an excellent portfolio has sent FNV shooting off like a rocket—the company’s price has gone up by 27.9% in the last three months, thanks to earnings growth of 21% for the year. And that’s part of a historical trend—since its IPO ten years ago, FNV has performed beautifully, offering 400% returns to investors without counting dividends
The company has steadily added assets—taking on a 2% royalty on Marathon Gold Corp’s Valentine Lake operation in central Newfoundland for $18 million, as well as a 2% royalty on the Gold Field’s operation at Salares Norte in Northern Chile for $32 million.
These are small potatoes for a company worth $18 billion, but it’s a sign that FNV’s excellent growth shows no signs of slowing. ut an even bigger deal is on the horizon—in July, FNV announced it was entering into an agreement with Range Resources Corporation for an overriding royalty interest in the Marcellus Shale formation, a deal worth $300 million. This deal means FNV could be slowly moving away from gold and platinum and into natural gas and oil.
Unlike other major miners, which have assets scattered around the world, Kirkland Lake Gold (NYSE:KL) is focused on Canada and Australia. Its portfolio makes it a low-risk, high-value stock, one that looks even more attractive after the good news from 2018.
Kirkland currently boasts a Zacks “Strong Buy” ranking. The Zacks Consensus Estimate for earnings in 2019 has risen 52%, and project four-year growth of 47%. And Kirkland doesn’t intend to slow down any time soon.
It has plans to expand operations in Canada and is sinking more than $100 million into exploration, confident that “peak gold” predictions won’t come to pass. The company’s Canadian workforce is set to grow by the thousands, once a new shaft is sunk at the Macassa mine. Look to Kirkland for more exciting news in 2019.
Diversification Is Key
Pan American (NYSE:PAAS) is a world-class mining operation with active projects in Mexico, Peru, Canada, Bolivia and Argentina. Though silver has seen better days, it is still a favorite among investors stocking up on safe haven assets.
Recently, Pan American made a major acquisition of Tahoe Resources, absorbing the company’s issued and outstanding shares.
Michael Steinmann, President and Chief Executive Officer of Pan American Silver, said: “The completion of the Arrangement establishes the world’s premier silver mining company with an industry-leading portfolio of assets, a robust growth profile and attractive operating margins. We are also now the largest publicly traded silver mining company by free float, offering silver mining investors enhanced scale and liquidity.”
By. Meredith Taylor
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