Gold: Can higher prices translate into cash?
All too often in the last decade for the gold sector, fully loaded costs have come close to equalling the received price. Therefore, one reason gold equities have likely recently lagged spot prices reflects a degree of market scepticism of the sector's ability to translate higher prices into “cash”. Unfortunately, the senior producers have often been key protagonists, but this isn’t the case for all gold stocks. Herein, David Radclyffe updates the sector cost analysis including highlighting Free Cash Flow (FCF) costs and FCF costs plus dividends, seeking to identify those stocks that could bank the proceeds of higher spot prices in 2024. The notional spot margin after base case dividends in 2024E for Agnico Eagle Mines / Barrick Gold Corp / Newmont is ~US$395/GEO, up from US$200/GEO in 2023. However, the best cash notional margins in 2024E could be delivered by Evolution Mining, Lundin Gold, Centerra Gold, and Barrick Gold Corp.
Edition: 186
- 17 May, 2024
Materials
Offers an attractive combination of high production growth, low costs, assets in safe jurisdictions and a management team with an impressive track record - all points of differentiation to intermediate peers. GMR discusses how consolidation in 2021 has created district plays in the portfolio and EVN has a clear pathway to 1Moz/yr (or ~1.5Moz/yr GEO) in FY24/FY25. Critically, Cowal and Red Lake have the potential to demonstrate they are “true Tier 2” assets. While M&A is part of the gold miner's DNA, GMR believes options are limited right now, although management may consider a Mt Rawdon replacement or merger further down the line.
Edition: 134
- 29 April, 2022
Aussie gold: Recalibrating portfolios, increasing spending
Headwinds from labour shortages and inflation have made 2021 performance lacklustre, but factors that usually favour gold, such as inflation and geopolitical risk, are clearly on the rise. Growth capital expenditure is set to more than double the rates of a few years ago at ~US$375/oz in FY22 in order to satisfy investors. David Radclyffe’s preferred exposure to Aussie gold is through Northern Star Resources and Evolution Mining (recently upgraded to BUY), whilst St Barbara falls in last place as difficult choices lay ahead.
Edition: 128
- 04 February, 2022
Aussie golds spending their dollars
Australian gold companies are heavily reinvesting their cash surpluses. This increased investment indicates companies are becoming more confident in higher prices for the long-term, backed by unleveraged balance sheets. BUY rated Evolution Mining (target $4.80) is expected to reinvest ~US$400/oz in major/growth capital over FY22-FY24E. Northern Star Resources is looking at reinvesting ~US$195/oz but remains the preferred BUY rated Aussie gold with a target price of $14.00.
Edition: 116
- 06 August, 2021