Investors turned to gold as a safe haven last year to protect their wealth during the COVID-19 -led economic slowdown and attendant market uncertainty. However, the precious metal has been witnessing a price correction since hitting its all-time high amid the pandemic on optimism about the effectiveness of the vaccines and the potential for a robust economic recovery. However, fiscal stimulus and an improving job market have been boosting investors’ purchasing power and creating inflationary pressures.
Legendary investor Warren Buffett recently told Berkshire Hathaway’s (BRK.A) annual shareholder meeting, “We are seeing very substantial inflation.” Buffett added, “We are raising prices. People are raising prices to us, and it’s being accepted.” In fact, according to Statista, the annual rate of inflation this year is expected to be 2.26%.
Given this backdrop, gold should start witnessing strong demand because it tends to perform well in an inflationary environment.
Though many investors believe the Federal Reserve will raise interest rates to combat expected inflation, the central bank has made it clear that it is unlikely to change its accommodative stance for at least a year. Hence, experts believe that gold’s secular bull market is far from over and that the metal gold could break the $2,000-level again in the near term.
While the economic recovery has boosted investors’ risk appetite, uncertainties remain regarding the pace of the economic recovery. With the printing of money picking up pace globally, and the Fed expanding its balance sheet, the price of gold is well-positioned to move north. As direct beneficiaries of this, we think gold mining stocks Kinross Gold Corporation (KGC), Gold Fields Limited (GFI), and B2Gold Corp (BTG) are likely to hit new highs this year.
Kinross Gold Corporation (KGC)
KGC is a Canada-based senior gold mining company that acquires, explores for and develops gold properties, principally in the United States, Brazil, Chile, Ghana, Mauritania, and Russia.
KGC’s Tasiast 24k development project has been advancing on budget with the mine expected to increase throughput to 21,000 ton/day by the end of this year. The drilling and study work has also been progressing at its Udinsk project and a pre-feasibility study is expected to be complete this year along with the feasibility study of its Lobo-Marte project. In addition, the pre-stripping of the La Coipa Restart project started in January 2021 and first production remains on-track for mid-2022.
KGC is scheduled to release the results of its first quarter, ended March 31, on May 11. The company produced 2.366 million ounces of attributable gold in its fiscal year 2020, underpinned by strong performances at most sites, with standout performances at its three largest producing mines–Paracatu, Kupol and Tasiast. KGC’s $4.21 million of total metal sales, improving 20% year-over-year, accounted for 2.375 million total gold equivalent ounces sold during the year. Its adjusted EPS more than doubled to $0.77, compared to the $0.34 year-ago value.
KGC added 5.7 million gold equivalent ounces to its probable mineral reserves in 2020, a 23% year-over-year increase, to 30 million ounces. This was due mainly to 6.4 million ounces in net additions at Lobo-Marte, 446,000 ounces at Chirano and 103,000 ounces at La Coipa mines. In fact, KGC’s management extended mine life at Chirano by three years, and by one year at Kupol and Paracatu, and continued to explore opportunities for further mine life extensions.
KGC has gained 5% over the past month but is up merely 0.4% so far this year. In 2021, Kinross expects to produce 2.4 million gold equivalent ounces from its operations, which is consistent with its 2020 production. Notably, its first gold ounces were produced from the new heap leach pad at the Fort Knox Gilmore development project earlier this year. Wall Street analysts expect KGC’s current year revenues to grow 7.3% year-over-year.
KGC’s POWR Ratings reflect this promising outlook. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
The stock has an overall B rating, which equates to Buy in our proprietary rating system. KGC has a B grade for Value, Momentum, and Quality. It is ranked #9 of 41 stocks in the C-rated Miners – Gold industry.
In total, we rate KGC on eight different levels. To see additional POWR Ratings for Growth, Stability, and Sentiment, click here.
Gold Fields Limited (GFI)
GFI is a globally diversified mining company involved in underground and surface gold and copper mining and related activities, including exploration, development, extraction, processing and smelting. It holds interests in nine operating mines located in Australia, Peru, South Africa and West Africa (including the Asanko JV), as well as one project in Chile. As on December 31, GFI had 56.1 million ounces (Moz) of gold equivalent reserves.
GFI extracts most gold from the Australia region and its mines in West Africa, primarily Ghana. Though the company experienced distressed production across all the mines last year, its South Deep mine in the South Africa region was the most affected. However, the mine had a strong recovery in the third quarter of 2020 and is now generating meaningful cashflow. Its Gruyere mine in Australia also delivered strong performance in the fourth quarter of 2020 and is also expected to report a strong performance this year.
For the full-year ended December 31, GFI’s revenue climbed 31.2% year-over-year to $3.89 billion. Its attributable gold equivalent production for 2020 was 2.236 Moz, up 2% year-over-year, while its all-in costs (AIC) were marginally higher from the prior year to $1,079 per oz. Mine cash flow for the year was $868 million, compared to $552 million in 2019. Its EPS for the year came in at $0.83, surging more than fourfold from the $0.20 year-ago value.
GFI’s Damang drilling program (initiated in 2019) is picking up pace as the company seeks to capture the benefit of higher commodity prices. The South Deep mine is expected to record a strong increase this year and production is expected to rise by 20% -30% over the next three to four years. The Salares Norte project remains on schedule and production is expected in first-quarter 2023. At Tarkwa, the company’s aggressive exploration activities are starting to yield results.
GFI has returned 26.5% over the past year. Though the stock has lost 3.4% over the past month, it is still up 5.7% year-to-date. GFI’s management is planning big capital expenditure this year and expects gold production for the full-year 2021 to be between 2.30 Moz – 2.35 Moz. Furthermore, analysts expect GFI’s EPS to grow at a 100.5% rate annually in the next five years.
GFI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. GFI has a B grade for Growth, Value, and Momentum. In the 41-stock Miners – Gold Industry, it is ranked #5.
Beyond what we stated above, we have also given GFI grades for Stability, Quality, and Sentiment. Get all GFI ratings here.
B2Gold Corp (BTG)
BTG is a low-cost international senior gold producer that operates with three mines in Mali, the Philippines, and Namibia, that are anticipated to have 7.18 million ounces in Total Probable Mineral Reserves. The company also has numerous exploration and development projects in various countries, including Mali, Burkina Faso, Namibia, Uzbekistan, Finland and Colombia.
Last month, BTG commissioned the world’s largest off-grid solar battery hybrid system at its Fekola gold mine in Mali in a bid to lower CO2 emissions by 39,000 tons. In fact, this solar system is likely to save 13.1 million liters of heavy fuel oil annually. However, on March 29, BTG issued an update on the Menankoto exploration permit, which forms a part of the Fekola Mine license, that the company was denied a renewed permit by the Malian Government. Notably, BTG expects to produce 530,000 to 560,000 ounces of gold in 2021 from the Fekola mine.
The first quarter (ended March 31, 2021) results reported by BTG impressed the Street. The company produced 220,664 ounces of gold during the quarter, 9% above its budget. It generated $362 million in quarterly revenue from the sale of 202,330 ounces of gold, compared to $380 million in the same period last year. The Fekola Mine continued its strong operational performance through the quarter, producing 125,088 ounces of gold, 7% above budget. The Masbate Mine in the Philippines also had a strong start to the year, with 57,513 ounces in first quarter gold production, well-above budget by 14%.
The company continued exploration drilling near the Fekola and the Anaconda area in Mali in the second half of 2020 and announced positive exploration drilling results for additional gold deposits at the Fekola mill in September. Furthermore, mill throughput was a quarterly record of 2.07 million tons in the first quarter of 2021, 19% higher than the year-ago quarter.
BTG has recently garnered solid price momentum and the stock has gained 12.4% over the past month. However, BTG is down 9.6% so far this year. Its management is focusing on adding a larger mining fleet to optimize its mining sequence. As a result, the company is on track to meet its annual gold production guidance for 2021 of between 0.97 – 1.03 million ounces. In line with the progress, analysts expect BTG’s EPS to grow at a 15.8% rate per annum over the next five years.
It is no surprise that BTG has an overall B rating, which equates to Buy in our POWR Ratings system. BTG has an A grade for Quality, and B for both Momentum and Value. It is ranked #12 in the Miners – Gold industry.
Click here to see the additional POWR Ratings for BTG (Growth, Stability, and Sentiment).
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KGC shares were trading at $7.22 per share on Tuesday afternoon, down $0.15 (-2.04%). Year-to-date, KGC has declined -1.63%, versus a 10.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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