Our content may include links to products from our partners
The Smart Investor content is intended to be used and must be used for informational purposes only. We are not an investment advisor and you should NOT rely on this information to make investment decisions.
Gold has experienced a relatively quiet time in the headlines during 2017, which might make it a good time to examine the sector. There are not that many investments around the world that are still well down from 2011 levels like gold.
Whilst Bitcoin has been all the rage of late and obviously exhibits many clear differences, it is interesting that the gold price has been subdued given it does share some similar attributes. Gold can also be sought after as an alternative form of money outside of the banking system, where supply cannot be so freely tampered with like fiat money in recent times.
The popularity of ETFs for exposure in recent years may have led to shares in gold miners representing better value than used to be the case.
Best Gold Mining Stocks To Invest In 2018
With increasing signs of late for a pickup in US inflation, and the Fed who has tended to be dovish for as long as most can remember, Gold is poised to return to favor.
Here is a list of five gold mining stocks that might be worth some consideration:
1. Barrick Gold Corporation (NYSE:ABX)
Let’s begin with the largest gold producer in the world in Barrick Gold.
Improved Debt Profile
More than 75% of its production comes from the Americas region, and the company is making plenty of progress on debt reduction and cost savings. By the end of next year, they should have reduced total debt from $13B to $5B within a five-year timeframe. A large portion of this debt remaining is due after 2032, so the debt profile has an average maturity of 18 years. The balance sheet strength can be achieved in part due to their long track record of running a portfolio of long-life production assets. Their guidance is for average all-in sustaining costs (AISC) in the range of $700 to $770 per gold ounce over the next three years.
Whilst their growth prospects now may not be perceived as great as some of their peers, this may provide a good opportunity for investors. The underlying strength of their balance sheet and operational efficiencies places them in a good position to positively surprise here on mine development and new discoveries.
World’s Largest Gold Miner
Being the world’s largest gold miner comes with advantages that may be currently underappreciated by the market. They have the scale to become leaders in productivity improvements, and have entered in a strategic partnership with Cisco to unlock the potential of digital mining, where they have already seen benefits in Nevada. To learn more about this and other strategic initiatives of Barrick, you can visit the Asian Marketing section presentation for November 2017 via this link.
Barrick Gold Corporation Stock in 2017
2017 hasn’t been a great year for Barrick shareholders, but some of the issues were from temporary factors. Weather related issues at one of their core mines in Pueblo Viejo, and then the Tanzanian government banning exports from their Acacia Mining unit have contributed to share price weakness in recent times. Once these issues fade it could assist in a positive re-rating for Barrick, where the valuation appears undemanding.
2. Goldcorp Inc. (NYSE:GG)
Goldcorp is also a major player in the gold market and may be better placed for growth, and operates mines across Canada, Mexico & Argentina.
Impressive Future Targets
The company may not have as lean a cost structure yet as Barrick, but an aggressive target in place to get AISC down to $700 an ounce by 2021 is one of a range of potential catalysts that could help the shares. It offers exposure to a promising outlook for growth in reserves and production. It is already a third of the way towards a 20% growth target in gold reserves to 60 million ounces in 2021.
Their most recent set of results were received well by the market, where the company reiterated its confidence of achieving the broad goal of 20/20/20 by 2021. This refers to getting AISC down by 20%, and achieving growth in reserves and production also by 20%.
Goldcorp stock in 2017
It is another example of a gold company that is repositioning its portfolio by gradually selling off assets to reduce debt, but reinvesting to create a strong pipeline that may reward shareholders willing to take a longer-term view.
If Goldcorp can deliver on their stated objectives, the earnings should look materially higher within the five-year time frame that has been set. A forward-looking investor can see signs that the future earnings multiples are not that demanding, but the prospects may also be enhanced if the market is willing to pay expanded multiples for a gold company with solid growth in reserves.
Goldcorp is likely to stand out versus some of its peers on this basis.
3. Newmont Mining Corporation (NYSE:NEM)
Newmont is also amongst the largest gold producers in the world today. It could compliment holdings in the previously mentioned stocks, by adding to geographic diversity generally and incorporating some exposure to the Asia Pacific region.
Newmont has also pursued asset sales in recent times to reduce debt, but may stand out due to being ahead of its peers in this respect. Admittedly the AISC are not as low as the likes of Barrick and Goldcorp, but this may attract investors who want a stock with more leverage to a rising gold price. Newmont has a dividend policy that is linked to the movements in the price of gold.
Newmont Mining Corporation stock in 2017
As I have thus far touched on a couple of examples of the major gold producers having a bias to run a more cautious balance sheet compared to a few years ago, some may question the growth prospects.
Growth and Dividend
I think it is important to point out however, and Newmont themselves have emphasized this point in their most recent investor presentation, that we have seen a dramatic reduction in development capital spending from the top ten gold producers over the last five years. I view this as quite bullish for the gold price. With most investors surprised over this period to the extend bond yields have remained low, I could see a scenario where an increasing Newmont dividend is increasingly sought after.
4. Yamana Gold Inc (NYSE:AUY)
Just in case you were wondering if this is purely a list of the top 5 largest gold companies in the world, the next stock I am listing as worth of consideration is Yamana which has certainly underperformed in the sector over the last 5 years or so. Its main project will be in Argentina going from development to production stage in 2018, making it a transformational year.
Great Entry Point
When investing in turnaround stories it can be beneficial to look for stocks where they may continue to deliver slightly disappointing news, but the market is reluctant to punish the stock further. Recent quarterly results may not paint a great picture when thinking about production numbers from the previous year, but they are confirming their targets and providing a confident outlook of increasing production numbers from here on.
It may prove to be a sweet spot soon with timing an entry into Yamana, as along with an expected improvement in production numbers we should see strong free cash flow generation in the years ahead. They are approaching a period where expansionary CapEx will drop, yet at the same time production should get a major boost with the Cerro Moro mine coming online next year.
Yamana Gold Stock in 2017
Yamana has multiple ways that may see debt further reduced next year
To reduce the risks, they have entered into some option collar arrangements in the short-term, but the pickup in free cash flow in 2018 is likely to be the major driver for debt reduction. In addition to this, another catalyst could be from delivering on sales of non-strategic assets that they have signaled they will actively consider.
Amongst a range of assets being evaluated is a large equity stake in Brio Gold that they have only partially divested, which at times has weighed on the stock given its disappointing 2017. Such sentiment has arguably left the stock quite cheap.
5. NovaGold Resources Inc. (NYSE:NG)
NovaGold could represent some gold exposure for those looking for a more exciting ride than the likes of Barrick. Incidentally, these two are 50/50 partners in the Donlin Gold project, a world-class project that has many attributes a gold investor typically searches for.
Great Business Indicators
It may potentially be one of the biggest in the world, with high grade, low costs and a very long life. To put this partnership in perspective and to highlight the different risk profiles of Barrick and NovaGold, one must be mindful that the current market caps are approximately are $16B and $1.5B respectively.
The market caps indicate there is some doubt over NovaGold financing their projects. Acknowledging this though it is still a great opportunity, with this and its other major project both having long lives and situated in a safe jurisdiction with political stability.
NovaGold Resources Stock in 2017
In addition to the Donlin project situated in south-western Alaska, they have another 50/50 partnership with Teck Resources in the Galore Creek project located in north-western British Columbia. Galore Creek has the potential to be one of the largest and lowest cost copper mines in Canada.
A couple of factors could improve sentiment towards NovaGold relating to dealing with the uncertainty of such large capex spend and costs in the future. These two huge projects have been earmarked from more than five years ago, so I wonder if some of the spends was contemplated in a higher cost environment back then.
Perhaps there is scope for a positive surprise here, and then there is the prospect of potentially getting a third party involved in these 50/50 partnerships. Improving sentiment to the underlying commodities can give a big boost here.