In 2020, the stock markets experienced much volatility thanks to an economic freeze wrought by the COVID-19 panic. During the year, gold, as the preferred safe haven asset, was a big gainer. The yellow metal hit prices above $2,000 an ounce, rising more than 20% in 2020. As the pace of the economy is still uncertain, and with a new Presidential Administration set to take office, market volatility is likely to continue in the near future. As a result, we think gold has decent upside potential for now.
Investing in the stocks of gold miners is better than investing in physical gold because the latter involves high commission, transportation, and storage costs, while gold miners benefit directly from rising gold prices.
However, investors must carefully select stocks that are fundamentally strong and can capitalize on the upside potential of gold. Yamana Gold Inc. (AUY), Eldorado Gold Corporation (EGO), and New Gold Inc. (NGD) are three companies that we believe have demonstrated strength last year and are well positioned to grow this year.
Yamana Gold Inc. (AUY)
AUY is a Canadian precious metal miner that explores gold and silver ores. Argentina’s Cerro Moro mine, Brazil’s Jacobina mine, the Canadian Malartic mine, Chile’s El Penon and Minera Florida mines are the producing mines for AUY.
In December 2020, AUY announced the integration of the Agua Rica Project and the Alumbrera Plant and related infrastructure. The collaboration is designed to create a significant and well-advanced copper, gold, and molybdenum development stage project.
During the third quarter, ended September 30, 2020, AUY’s revenue per ounce of gold increased 29.7% year-over-year to $1910. During the quarter, the company also posted operating cash flow of $215 million, the highest level since 2015. Meanwhile, AUY’s net debt also declined 19.4% year-over-year to $619.1 million. AUY’s revenue jumped 22.8% year-over-year to $439.4 million. Its EPS for the quarter declined to $0.06 from $0.21 posted in the same period last year.
The Street expects revenue for the quarter ending March 31, 2021 to be $507.9 million, representing a 7% year-over-year growth. EPS for the quarter is likely to grow 31% to $0.41. Over the past year, AUY has gained 49.3% to end yesterday’s session at $5.41.
How does AUY stack up for the POWR Ratings?
A for Trade Grade
B for Peer Grade
B for Overall POWR Rating
The stock is also ranked #8 of 59 stocks in the Miners – Gold industry.
Eldorado Gold Corporation (EGO)
EGO, along with its subsidiaries, explores, acquires, develops, commercializes, and reclaims mineral products, primarily in Canada, Turkey, Greece, Brazil, and Romania. Kisladag and Efemcukuru located in western Turkey, Lamaque in Canada, and Olympias and Stratoni located in northern Greece are the five mines it operates.
EGO recently announced that its preliminary 2020 gold production rose 34% year-over-year to 528,874 ounces, in-line with its guidance of between 520,000 and 550,000 ounces. The company’s Kisladag mine had strong output for the year.
During the third quarter, ended September 30, 2020, EGO’s gold production surged 35% year-over-year to 136,922 ounces. At the end of the period, the company’s free cash flow soared to $117.2 million from $16.7 million posted in the prior year period. EGO’s revenue climbed 66.9% year-over-year to $287.6 million, while its EPS rose to $0.24 from $0.03 in the same period last year.
Revenue for the fourth quarter ended December 31, 2020 is expected to be $191.1 million. Its EPS is expected to rise 266.7% to $0.41. EGO surged 70.8% in the past year to close yesterday’s trading session at $12.50. The stock rallied 20.9% during the past six months.
EGO’s POWR Ratings reflect this promising outlook. It has an overall rating of “Buy” with an “A” for Trade Grade and Peer Grade, and a “B” for Buy & Hold Grade. Among the 59 stocks in the Miners – Gold industry, it is ranked #9.
New Gold Inc. (NGD)
NGD explores gold, silver, and copper deposits. It is an intermediate gold mining company involved in the development and operation of mineral properties. The company’s principal operating properties include 100% interests in the Rainy River gold-silver mine and New Afton gold-copper mine, located in Canada’s Ontario and British Columbia, respectively.
NGD recently redeemed $200 million of its outstanding 6.375% senior notes due 2025. The redemption was funded with cash on hand.
NGD’s revenue for the third quarter ended September 30, 2020 rose 3.1% year-over-year to $173.7 million. Its EPS was $0.02 compared to a loss per share of $0.04 posted in the same period last year. Its total production for the third quarter was 115,536 gold equivalent (gold eq.) ounces. NGD’s New Afton operations continued to improve during the quarter and key B3/C-Zone projects were advanced.
Analysts expect revenue for the year ending December 31, 2021 to be $874 million, indicating a 36% year-over-year increase. EPS is likely to grow to $0.21 during the period.
NGD ended yesterday’s trading session at $2.06, surging 137.6% over the past year. Over the past six months, the stock surged 51.8%.
It is no surprise that NGD is rated “Buy” in our POWR Ratings system. It also has an “A” for Trade Grade and Peer Grade, and a “B” for Buy & Hold Grade. In the 59- stock Miners – Gold industry, it is ranked #10.
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About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More...
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