FN Media Group Presents Oilprice.com Market Commentary
London – November 19, 2019 – Some believe that it’s official. The trade war is leading us into a recession. Even Trump seems to think so. And for investors, that means one thing and one thing only. It’s time to hedge. Mentioned in today’s commentary includes: Newmont Goldcorp (NYSE: NEM), Franco-Nevada (NYSE:FNV), Barrick Corporation (NYSE: GOLD), Royal Gold (NASDAQ:RGLD), Pan American Silver (NASDAQ:PAAS).
The smart money has already started and gold prices are up, breaking through six year highs. Gold miners are having an incredible year. And if a crash does come, getting gold into your portfolio is absolutely key. With all that in mind, here are five stories gold investors should consider:
The Mega-Merger Of The Year
There is a new gold giant in town. The merger of Barrick Gold Corporation and Newmont Goldcorp Corporation, two of the world’s largest gold companies, has created a gold giant, Newmont Goldcorp (NYSE: NEM), the likes of which has never been seen before.
While Newmont’s stock price for its share of the joint venture has only seen a minor bump compared to Barrick’s outstanding 41% since the merger, it is undoubtedly in a better position. Newmont’s new assets may take up to three years to reach optimal levels, meaning the positive impact of the merger is going to continue to be felt for a long time to come.
As for its current position, its Q2 earnings showed some very positive results, growing to $2.26 billion from $1.66 billion the previous year. Its production has also seen a boost, with Newmont digging up 1.5 million oz of gold in the second quarter – setting its highest quarterly haul in years.
There are some management issues for the mega-firm to iron out since its merger – with a leadership swap which will see CEO Gary Goldberg step down to make way for Tom Palmer, COO since 2016. In more good news for the company, higher gold shipments from Goldcorp assets should see Newmont’s revenue increase by roughly 45% in 2019 from the year earlier.
The new gold assets will also help to insulate Newmont from volatility in the copper market and its joint venture with Barrick appears to be working well for both companies.
The Next Gold Hotspot
There is a new goldrush taking place in an unexpected hotspot. It all started when some artisanal miners stumbled across a couple of large gold nuggets. One of those nuggets weighed 1kg and was worth $45,400, and that wasn’t even the biggest. A second nugget that was found came in at nearly three times the size – worth $122,500. And that’s only the beginning.
The mine where these nuggets were discovered has been shown to have visible gold extending all the way from the surface down to 200 meters. This discovery truly is unique.
To make things even better, the mine is located on one of the largest gold belts in the world, meaning that African Gold Group’s (AGG.V– AGGFF) Kobada mine in southern Mali has been quick to draw investor attention.
South Africa has lost its crown as the world’s largest gold producing area to a new region in West Africa…. A region that now includes this new Kobada Mine. The initial aim of AGG was to produce 50,000 oz/year from Kobada – a respectable production level – but it is now aiming for twice that. A 100,000 oz/year production level from a deposit that is expected to exceed more than 2.2. million ounces. And as if that wasn’t enough, it has only focused drilling on less than 10% of its perspective concessions – so these numbers could be much, much bigger.
At today’s gold prices, you are looking at $3.1 billion in gross revenue – and that’s from a company with a $30 million market cap.
West Africa is undeniably the hottest gold spot on earth, and for good reason. The region is stable, the labor costs are low and the licensing process is incredible speedy compared to other regions (3 months versus the 5-7 years you can see in North America)
The timing couldn’t be any better for African Gold Group’s (AGG.V; AGGFF) and the Kobada mine. There are already 61 new assets in production or construction stages in the area, with 24 more assets undergoing economic assessments and an incredible 367 assets in exploration. This is currently the center of the gold mining universe.
It isn’t any surprise then, that African Gold Group’s (AGG.V; AGGFF) was easily able to raise fresh funds for the Kobada operation. And it probably helped that the AGG management team reads as a who’s who of mining industry professionals and financial experts who have been producing gold success stories for decades…
Two of the company’s directors, Sir Sam Jonah and Bruce Humphrey, already have a combined experience of one hundred years working the finances for mining operations.
There are very few individuals as respected or experienced as AGG’s 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. He was also responsible for building the world’s largest cobalt mine.
But the real jewel in the crown of AGG is the company’s new CEO, with thirty years of experience in the industry and an incomparable CV. Stan Bharti has overseen countless successes in the mining industry, amassing over $3 billion in investment capital and uncovering more than 20 million ounces of gold. And it’s not just his experience that has investors excited, Bharti has a real talent for reading the gold market. He correctly predicted two major price spikes in the mid-1990s and 2003. Then, in 2008, he took a small company at the height of the global financial crisis, and spun it off four years later in a deal worth $500 million.
Raking In The Royalties
Not exactly a miner, Franco-Nevada (NYSE:FNV) makes its money from gold royalties and streaming as well as holding interests in platinum group metals and other assets. And there is plenty of money to be made in this industry. It finances the mines of other companies and takes an easy share of the profits. So when gold prices are soaring, this is the place to be.
An excellent portfolio and a booming gold market has seen FNV’s portfolio soar – with its share price up 39% year to date And this year hasn’t even been particularly out of the ordinary, with the company returning investors a 526% return since 2007 without including dividends.
The company continues to add assets – taking on a 2% royalty on both Marathon Gold Corp’s Valentine Lake operation and Gold Field’s Salaries Norte operation for $18 million and $32 million respectively. For a company worth roughly $18 billion, these assets are a drop in the bucket, but it does show that the growth from this record breaking company isn’t stopping any time soon. And there’s an even bigger deal in the pipeline, with FNV entering into an agreement with Range Resources Corporation for a deal worth $300 million.
The most significant part of this deal is that it shows FNV is looking to expand beyond just gold and platinum into the oil & gas space.
The Dividend Play
Barrick Corporation (NYSE: GOLD) may have lost its place as the largest gold company in the world this year, but it does remain the most profitable. It has five of the ten largest gold mines and its production continues to climb. In terms of sheer size, the mega-merger of Newmont and Goldcorp outstrips Barrick. But size isn’t everything.
Barrick has already risen 41% since May, on the back of rising gold prices and strong demand. It is currently blowing the competition out of the water and has hiked its dividends as prices climb.
In June, Barrick was being touted as the company to beat in gold markets – thanks to a strong balance of revenue to debt and production which has steadily increased, driven by a joint venture with Newmont in Nevada and the acquisition of Randgold.
Now, as well as increased dividends, its earning estimates are climbing. It is undeniable that Barrick is an excellent hedge against downturns elsewhere in the market.
Pay Attention To The Streaming Space
The second stream-and-royalty gold firm on the list is another giant – Royal Gold (NASDAQ:RGLD) – with a market cap nearing $8 billion. With a 53% gain in the last year, it is outperforming in the today’s bullish gold market and it is showing no signs of slowing down.
Its short-term stock activity is what really differentiates this giant, with most investors using it as hedge against the current trade war. Royal Gold has recently earned the reputation as creating a “business model that prints money” with its ability to pick up shares in various promising operation and simply sitting back to let the royalties flow.
As the gold boom picks up speed, the streaming space is undoubtedly one which savvy investors should be looking into.
Gold Isn’t Everything
When it comes to safe haven assets, investors should diversify away from only gold and look to get involved in an increasingly promising silver market. Pan American Silver (NASDAQ:PAAS) is arguably the single best silver stock out there, with active projects in Canada, Argentina, Mexico, Bolivia and Peru. When gold move, silver does too, and the both of them are currently setting up for a bull run.
Pan American’s major acquisition of Tahoe Resources earlier this year has been a real coup for the company – with its share price having jumped by over 60% since May.
The company’s President and Chief Executive Officer, Michael Steinmann, believes that the competition of that particular acquisition has established Pan American as “the world’s premier silver mining company with an industry-leading portfolio of assets, a robust growth profile and attractive operating margins.”.
The fact that this is now the largest publicly traded silver mining company has given mining investors even more reason to be excited.
By. Charles Kennedy
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