Gold prices have been recovering over the past couple of weeks, driven primarily by increasing demand for it as a safe-haven investment. Increasing inflation in the United States, coupled with rising labor costs, has motivated many investors to hedge a proportion of their portfolios by investing in precious metals. Also, because analysts expect real interest rates to remain in historically low territory due to the Fed’s ultra-loose monetary policy, gold should continue  benefiting.

The Fed’s continued dovish stance and proposed fiscal stimulus packages are also putting pressure on the Greenback, and investors have been rotating to gold to hedge their portfolios against market volatility. This is evidenced by SPDR Gold Minishares Trust’s (GLDM) 3.2% gains over the past month, compared to S&P 500 index’s marginal decline.

Given this backdrop, we think small-cap gold mining stocks Torex Gold Resources Inc. (TORXF) and Argonaut Gold Inc. (ARNGF) could deliver solid returns in the coming months.

Click here to check out our Gold and Silver Industry Report for 2021

Torex Gold Resources Inc. (TORXF)

TORXF is a Canadian gold producer that operates through the Moleros Gold property in Mexico. The company has mining and exploration interests in two mines in Mexico. It is now expanding its interests in the renewable energy industry and  entered  an agreement with renewable energy producer Scatec in April to build an 8.5-megawatt solar plant on it  Moleros property. TORXF has a $1.18 billion market cap.

In its  fiscal first quarter, ended March 31, TORXF’s revenues were $231.20 million, up 34.4% year-over-year. Its earnings from mine operations increased 255.9% from the prior year quarter to $99.30 million, while its EBITDA increased 287.6% from the same period last year to $152.70 million. Its net income and EPS improved substantially from negative year-ago values to $55 million and $0.62, respectively.

TORXF has been taking active steps to reduce its debt burden and strengthen its balance sheet. As of March 31, the company was  debt free, other than finance leases. It has secured a $150 million revolving credit facility, which is expected to fund the company’s working capital and general corporate expenses. Adopting  a revolving credit facility should allow TORXF to minimize its interest burden substantially.

In April, the company received an amended environmental permit for its Media Luna project. The amendment allows TORXF to undertake construction activities beyond its original agreement. The permit should help TORXF to expand its Media Luna project.

Analysts expect TORXF’s EPS to rise 7% year-over-year to $1.83 in  2021. A $868.35 million consensus revenue estimate for the current  year represents  a 5.4% improvement from the same period last year. Shares of TORXF have gained 6.6% over the past year.

It’s no surprise that TORXF has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

TORXF has an A  grade for Value and Quality, and a B for Growth and Momentum. It is ranked #3 of 49 stocks in the Miners – Gold industry.

In addition to the grades I’ve highlighted, click here to view TORXF Ratings for Stability and Sentiment.

Argonaut Gold Inc. (ARNGF)

ARNGF has mining and exploration interests in gold bearing properties across North America. Its primary assets are three mines in Mexico, one in the United States and one in Canada. It has a $839.98 million market cap. Also, the company has an ISS Governance Quality Score of 1, indicating negligible governance risk.

ARNGF’s revenues increased 58% year-over-year to a record $105.30 million in the first quarter, ended March 31. This can be attributed to record quarterly gold production of 59,704 gold equivalent ounces. ARNGF’s gross profit nearly doubled from its year-ago value to $27.60 million. Its net income and EPS improved 382% and 280%, respectively, from the same period last year to $27 million and $0.09.

On April 28, ARNGF received an amended air quality permit, which allows the company to install a new conveying and stacking system in its Florida Canyon mine in Nevada. This should allow the company to expand its production profile while keeping costs at bay.

In March, ARNGF raised CAD$10 million ($8.26 million) through a private placement of 4.26 million shares of common stock. The proceeds from this offering are expected to fund construction of its Magino project in Canada. The new mine should allow ARNGF to expand its production capacities significantly.

The Street expects ARNGF’s revenues and EPS to rise 31.8% and 4.8%, respectively, year-over-year to $421.35 million and $0.22,  in  2021. The stock has gained 87% over the past year, and 23.5% year-to-date.

ARNGF has an overall B rating, which translates to Buy in our proprietary rating system. The stock has a B grade for Value, Growth and Momentum. It is ranked #4 in the same industry.

Beyond what we’ve stated above, we have also rated ARNGF for Stability, Quality and Sentiment. Get all ARNGF Ratings here.

Click here to check out our Gold and Silver Industry Report for 2021

TORXF shares were trading at $13.85 per share on Thursday morning, up $0.11 (+0.80%). Year-to-date, TORXF has declined -7.91%, versus a 13.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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