4 Gold Stocks to Buy to Capitalize on Solid Price Trends

The prospects for the Zacks Mining - Gold industry look bright at the moment on the back of improving gold prices. The yellow metal is likely to gain, fueled by ongoing geopolitical tensions and strong demand.

With gold prices anticipated to gain further on demand-supply imbalance, companies like Agnico Eagle Mines AEM, Gold Fields Limited GFI, AngloGold Ashanti PLC AU and Harmony Gold HMY are well-poised for growth, backed by their strong balance sheets, efforts to lower costs and growth initiatives.


About the Industry

The Zacks Mining - Gold industry comprises companies engaged in extracting gold from mines. These mines may be either underground or open pits. Mining is a long and complex process, and requires significant financial resources. It involves exploration to evaluate the deposit's size; assessing ways to extract and process the ore efficiently, safely and responsibly; and developing the mine before the actual mining process. It normally takes 10-20 years for a gold mine to produce material that can finally be refined. Nowadays, industry players use a range of sophisticated techniques to extract gold and convert it into dore bars, an alloy of gold and silver, alongside other impurities. These are then sent for purification, after which gold is purchased as bars or coins or used in jewelry or other purposes.

Major Trends Shaping the Future of the Mining-Gold Industry

Upbeat Gold Prices to Drive Industry Growth: Since the start of 2024, gold prices have risen 13%. Remaining consistently above the $2,000-per-ounce mark, the yellow metal peaked at an unprecedented $2,431.55 per ounce in April. Several factors have contributed to this upward trajectory, including increased geopolitical tensions, a depreciating U.S. dollar, the potential for monetary policy easing, and continuous purchasing by central banks. Physical demand has also been strong in China of late since the weaker yuan, volatile stock market and comparatively low deposit rates have led investors to explore alternatives for their savings.

Efforts to Counter High Costs to Sustain Margins: The industry has been facing a shortage of skilled workforce, causing a spike in wages. Industry players are persistently grappling with escalating production costs, including electricity, water, and material and supply-chain issues. Since the industry cannot control gold prices, it focuses on improving the sales volume and the operating cash flow, and lowering unit net cash costs. The industry participants are opting for alternate energy sources, such as solar or wind farms, to minimize fuel-price volatility and secure supply. Miners are committed to cost-reduction strategies and digital innovation to drive operating efficiencies.

Impending Demand & Supply Imbalance to Support Prices: Depleting resources, declining supply in old mines and the lack of new mines have been inherent threats to the industry. Due to the scarcity of discoveries and exhaustive existing resources, miners prefer building up reserves through acquisitions rather than digging new ones that are risky and capital-intensive. On the demand side, the use of gold in energy, healthcare and technology is rising. India and China account for around 50% of consumer gold demand. Economic strength in India is yielding wealth-driven buying. The yellow metal has long been considered a safe-haven investment in financial or political uncertainty. Gold demand continues to be on the rise from central banks. Therefore, there will be an eventual demand-supply imbalance, which is likely to drive gold prices.

Zacks Industry Rank Indicates Bright Prospects

The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. The Zacks Mining - Gold Industry, which is a 35-stock group within the broader Zacks Basic Materials sector, currently carries a Zacks Industry Rank #49, which places it in the top 19% of 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.

 

Industry Versus S&P 500 & Sector

The Mining-Gold Industry has underperformed the S&P 500 Index and the Basic Material sector in a year. The stocks in the industry have collectively grown 0.4% compared with the broader sector’s rise of 4.6%. The S&P 500 has jumped 23.5% in the same timeframe.

One-Year Price Performance


 

Industry's Current Valuation

On the basis of the forward 12-month EV/EBITDA, a commonly used multiple for valuing gold-mining companies, we see that the industry is currently trading at 6.55X compared with the S&P 500’s 12.57X and the Basic Material sector’s forward 12-month EV/EBITDA of 7.16X. This is shown in the charts below.

Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio

Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio

Over the last five years, the industry traded as high as 9.26X and as low as 4.63X, with the median at 6.20X

4 Mining-Gold Stocks to Bet on

Gold Fields: The company produced 2.30 million ounces of attributable gold equivalent ounces in 2023, in line with its guidance. For 2024, it is targeting 2.33-2.43 million ounces. GFI recently announced the first gold pour at its Salares Norte mine in Chile’s Atacama province. This achievement underscores the culmination of a 13-year journey from project discovery through exploration and development to production. Salares Norte is a world-class project with one of the industry’s lower-cost profiles and a payback period of less than three years at current gold prices. It will boost GFI’s cash flow profile over the next few years. Despite substantial capital expenditure, primarily attributed to Salares Norte's construction, the company maintains a healthy net-debt-to-EBITDA ratio of 0.42X. Gold Fields has been looking for value-accretive inorganic opportunities to bolster its pipeline. The Tarkwa mine, the flagship asset in its portfolio, is poised to sustain an annual production rate of approximately 500 thousand ounces over the next decade independently. The company is currently making progress in negotiations with the Ghana government for the approval of the proposed Tarkwa/Iduapriem JV with AngloGold Ashanti. If approved, this partnership will unlock operational synergies, enabling higher production rates and grades, thereby extending the combined operation's mine life to at least 18 years.

The Zacks Consensus Estimate for the Sandton, South Africa-based company’s fiscal 2024 earnings has moved up 33% over the past 30 days. The consensus mark indicates year-over-year growth of 64.5%. GFI currently sports a Zacks Rank #1 (Strong Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Price & Consensus: GFI

Agnico Eagle Mines: The merger with Kirkland Gold solidifies AEM’s standing as a premier gold producer, backed by enhanced financial resources and a robust project pipeline. Agnico Eagle’s sufficient cash flow is enabling it to maintain a strong exploration budget, primarily focused on Kittila, Canadian Malartic, LaRonde, Kirkland Lake, Hope Bay and Santa Gertrudis. The Kittila mine in Finland is the largest primary gold producer in Europe and hosts the company's largest mineral reserves. AEM continues to expand the exploration drilling of Roura Main, Sisar and Rimpi Zones to take advantage of better grades. LaRonde, Canadian Malartic and Nunavut are expected to be major drivers for cash flow generation over the next several years. A lower debt level contributes to its overall financial strength and stability.

The Zacks Consensus Estimate for the Toronto, Canada-based company’s 2024 earnings has moved up 18% over the past 30 days. The estimate indicates year-over-year growth of 24%. AEM has a trailing four-quarter earnings surprise of 16.5%, on average. The company currently has a long-term estimated earnings growth of 16.6% and a Zacks Rank #2 (Buy).

Price & Consensus: AEM

AngloGold Ashanti: In 2023, the company produced attributable 2.593 million ounces of gold, achieving its guidance for the year. It recently completed the acquisition of an 11.7% interest in G2 Goldfields Inc., a Canadian gold mining company with exploration properties in Guyana, South America. This move will provide AngloGold Ashanti with a solid position in one of the world’s key gold provinces with great potential for discoveries. AU produced 2.593 million ounces of gold in 2023 at total cash costs of $1,108 per ounce — within its guidance range. The company delivered strong performances at Sunrise Dam, Iduapriem, Cuiabá, Kibali and Tropicana. The production projection for 2024 is pegged at 2.590-2.790 million ounces of gold. The mid-point indicates growth of 4%. This will be aided by the step-up at Obuasi following the completion of Phase 3 of the Obuasi redevelopment project and at Siguiri, wherein the company expects a year-over-year recovery following the 2023 CIL tank failure. The company expects costs to be flat at the mid-point in 2024, reflecting the continued realization of benefits from the Full Asset Potential review program. The proposed joint venture with Gold Fields mentioned above will help leverage the operating efficiency advantage at Tarkwa and unlock higher gold grades at Iduapriem.

The Zacks Consensus Estimate for earnings for the Johannesburg, South Africa-based company’s fiscal 2024 has been revised upward by 61% over the past 30 days. The consensus mark is pegged at earnings of $2.84 per share, whereas it reported a loss of 11 cents in 2023. AU currently flaunts a Zacks Rank #1.

Price & Consensus: AU

Harmony Gold: The company produced 832,349 ounces of gold in the first half of fiscal 2024, which marked a 14% year-over-year improvement. With this performance, the company believes that it is on track to achieve the upper end of the guidance of 1.38-1.48 million ounces of gold in fiscal 2024. The operating free cash flow surged 237% year over year to $381 million in the first half of fiscal 2024, driven by operational excellence and higher recovered grades. The company’s All-in sustaining costs declined 12% year over year to $1,403 per ounce in the first half of fiscal 2024. With this performance, the company has moved down the industry cost curve. HMY also reported an 11% increase in underground recovered grades to 6.29g/t from the 5.68g/t reported in the prior-year period, exceeding its guidance, primarily driven by Mponeng and Moab Khotsong. The company's efforts to reduce its debt levels appear encouraging.  HMY’s flexible balance sheet continues to support its investments in its solid growth pipeline.

The Zacks Consensus Estimate for earnings for the Randfontein, South Africa-based company’s fiscal 2024 has been revised upward by 11% over the past 30 days. The consensus mark indicates year-over-year growth of 98%. HMY currently carries a Zacks Rank #2.

Price & Consensus: HMY



 

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Agnico Eagle Mines Limited (AEM) : Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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