Four Ways To Play The New Gold Boom
FN Media Group Presents Oilprice.com Market Commentary
London – November 21, 2019 – There’s a common saying “hope for the best but prepare for the worst”. And that’s never been truer than in today’s markets. Just spend 5 minutes watching the news. The UK is looking down the barrel of an economically crippling no-deal Brexit. One of the world’s top financial hubs, Hong Kong, is teetering on the edge. Germany’s manufacturing sector is collapsing. And the U.S.-China trade war is taking domestic victims left and right. Included in today’s commentary: Eldorado Gold Corp. (NYSE:EGO) (TSX:ELD), Yamana Gold (NYSE:AUY) (TSX:YRI), Agnico Eagle Mines (NYSE:AEM) (TSX:AEM), Kinross Gold Corporation (NYSE:KGC) (TSX:K), Wheaton Precious Metals (NYSE:WPM) (TSX:WPM).
It’s safe to say that the global economy has seen better days. And according to economists and veteran market analysts alike. It’s about to get a whole lot worse.
Of course, we should hope for the best. No one is actually hoping for a global recession, after all. But it is time to start preparing for the worst. And what’s the best way to hedge against a potential global recession? Gold.
Investors are piling into gold in a big way. The market has never been hotter. Some are even saying that $2,000/oz gold may be on the horizon. And smart money knows that when gold goes up…so do the companies pulling it out of the ground.
Back in 2016, gold prices jumped 26% in 6 months… and gold miners exploded. And now, the same thing seems to be happening again. But catching the wave is no easy feat. From under-the-radar mines to old school producers stepping up their game, knowing where to look is the surest way to see big returns.
The Gold Rush Flying Under Wall Street’s Radar
When smart money is looking for a gold company with major upside, they’re looking for small companies with proven resources in the ground. Companies that still haven’t been gobbled up by the mega-miners of the world. And companies that haven’t quite hit the mainstream media circuit.
Toronto-based African Gold Group (AGG.V, AGGFF) checks every box. It’s sitting on an estimated 2.2 million ounces of mineral resources in the Kobada mine in Mali, a country that is currently experiencing its own veritable gold rush. And that’s almost certainly a conservative guess.
As Pope & Company noted, “The gold at the Kobada deposit is coarse and nuggety, which means the contained gold content is often under estimated.”
This is for a stock that has a modest market cap of around $30 million.
Here’s how it all breaks down:
First, take the company’s projected haul—50,000 oz a year. Valued at gold’s current rate of $1465 per oz, that’s revenue of $73.25 million. Now this is where it gets particularly exciting. A 2016 feasibility study supported Kobada’s worth. It’s an open-pit operation, using gravity separators and leach, a low-cost operation in an area with a high proven return rate. Mineralization is evident at shallow depths, which means they won’t have to sink big pits or blast away too much rock to get at the ore deposits.
African Gold Group’s estimates that it can pull gold out of the ground for only $788 per ounce. That means its costs are well below the industry average. What’s more, while the company is new, it certainly isn’t green.
There’s a new man at the helm of African Gold Group…the mining legend, Stan Bharti. Stan is a veteran of the gold game, with 30 years of success at the head of different mining ventures. He’s an engineer, international financier, and seasoned entrepreneur who has brought in $3 billion in investment for past companies.
Here are just a few of his past victories…
- Started and founded Desert Sun in 2002 at $0.40 a share and sold in 2006 for $7.50 a share
- Started and founded Consolidated Thompson 2004 at $0.25 a share and sold in 2011 for $4.9 billion or $17.50 a share
- Started Avion Gold 2008 at $0.40 a share and sold in 2012 for $400 million or $0.88 a share
- Started Sulliden 2009 at $0.40 a share and sold in 2014 for merged value of $464 million or $ 1.47
Don’t Write Off Mid-Level Miners Just Yet
While junior miners have the most exciting upside potential, investors would be smart to keep an eye on some of the industry’s growing stars. Eldorado Gold Corp. (NYSE:EGO, TSE:ELD) is a fine example.
It has assets in Canada, Turkey, Greece, Romania, Brazil and Serbia and is still looking to grow bigger. Eldorado has already produced 276,376 ounces of gold in the first three quarters of this year, and after the company confirmed its hefty end-of-year projections, it serves to reason that the company will be mining even more gold in the last final stretch of the year. Year-to-date, Eldorado has seen an impressive 133% surge in its share price, and it’s not likely to slow down now.
George Burns, Eldorado’s President and CEO stated: “As a result of the team’s hard work in 2018, we are well positioned to grow annual gold production to over 500,000 ounces in 2020.”
Yamana Gold (NYSE:AUY, TSE:YRI), much like Eldorado, is currently hard at work to ramp up its own gold production. Zacks Investment Research has called Yamana “a great momentum stock,” saying that all the numbers for the company are right, promising long-term growth. While Yamana’s growth hasn’t been quite as impressive as Eldorado’s, it has still seen a healthy 34 percent rise in its share price since the beginning of the year.
The Canada-based mid-level miner recently finished developing its Cerro Moro project in Argentina, where the mine produced its first gold and silver in May of last year.
By the end of the year, Yamana estimates that its gold production will increase by 20 percent and silver production is due to increase by an unbelievable 200 percent.
Not convinced yet? Yamana is also a 50 percent owner of Canada’s largest gold mine, the Canadian Malartic. And who owns the other half of the largest gold mine in Canada? That would be another Canadian gold producer, Agnico Eagle Mines (NYSE:AEM, TSE:AEM).
Agnico is the fourth largest gold mining stock on major U.S. exchanges according to the Motley Fool. Like its peers, it has also posted brag-worthy returns this year, seeing its share price grow by an impressive 45 percent.
It therefore goes without saying that the company is already a big fish in the gold sector, with eight fully-operational mines spread across Canada, Finland, and Mexico. As the Motley Fool writes, “much of Agnico Eagle’s popularity among investors comes from its near-term potential for rising production.”
The company has invested in assets in the Canadian Arctic territory of Nunavut, and its Meliadine and Amaruq mines are only now starting to add to total production for Agnico Eagle. Additionally, Agnico Eagle shareholders have benefited from one of the longest streaks of dividend payouts in the industry. Agnico Eagle’s dividends are particularly attractive for investors.
Many typically struggle to provide dividends after the significant capital expenditures required in the gold mining industry. Not only has Agnico Eagle managed to pay out a dividend for a whopping 36 years, their CEO Sean Boyd has long said it is a company priority to increase the payout.
Taking A Global Approach
Like Agnico Eagle Mines, Kinross Gold Corporation (NYSE:KGC, TSE:K) has also secured a position in the Motley Fool’s list of the 10 biggest gold mining stocks on major U.S. exchanges, coming in at lucky number seven. Kinross has a much more global view than many of its compatriot companies.
In fact, Kinross has no current projects operating in Canada, but instead has significant exposure to the United States, Brazil, Russia, Mauritania, and Ghana. This is all without mentioning the company’s numerous exploration sites, most notably in Chile.
“Kinross has ambitious plans for mining success,” says the Motley Fool. “The company expects annual production of roughly 2.5 million ounces of gold, with all-in sustaining production costs of close to $1,000 per ounce. More than half of its overall production is likely to come from its Western Hemisphere operations, with between 20% and 25% each coming from West Africa and Russia.”
Kinross also has excellent timing, having announced the acquisition of a $283 million Russian gold project last week, just before gold prices took off. Though Kinross has only posted a 28 percent gain on the year, it is a safe bet for investors, with its established position in the industry and impressive portfolio.
But now, with significant new projects underway and gold markets promising to keep growing as the stock market slows, the timing couldn’t be better to invest.
The Streaming Edge
For investors looking for something a bit different, Wheaton Precious Metals (NYSE:WPM, TSE:WPM) offers a unique take on the mining market. Massive and well-established, Wheaton has a hand in operations around the globe and a secure position as one of the largest ‘streaming’ companies on the planet.
Wheaton has earned an impressive 33 percent gain in its stock price this year thanks to the renewed interest in gold and its strategic positioning in the market.
The Vancouver-based company currently has agreements with 19 operating mines and a further 9 projects still under development.
If there was any doubt as to the viability of Wheaton’s somewhat unique ‘streaming; business model’, incredulity will quickly be shut down by the numbers. Wheaton’s stock value has doubled over the past four years thanks to higher revenues and a sharp rise in margins.
By Ian Marsh
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