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Insurance For Troubled Times
Gold has had an appeal to humankind since the dawn of ages and was probably the first metal ever refined into a pure product. It was the metal of gods and kings and quickly started to be used for trade. It also spurred countless rushes, sometimes sparking the entire colonization of an area like California.
Until 1971, gold was the backing behind the dollar, which itself was the backing behind every other currency. After this date, gold seemingly has been relegated to a barbarous relic with no economic role. At least in the West, while in India and China, gold is still a favored way of keeping one's savings protected from potential bank crises and government confiscation.
Even if not really monetized anymore, most central banks are keeping massive reserves in hundreds and thousands of tons and have been on a buying spree for most of the 2010s, with a massive spike in 2022.
With gold prices increasing over the last few months, investors might want to look again at a sector that has been out of the spotlight for many years.
Judging Gold Mines
Miners of any metal rely on a limited resource, metal ore, that gets depleted over time. So, each company has only so much metal proven and estimated in the ground before it runs out. These reserves can be replenished by finding new deposits, but this is very hard to predict, so it is often best to rely on more certain data like already proven reserves.
For this reason, this article will look at each miner's production, reserves, and total years of production expected.
Another metric is AISC (All-In-Sustainable-Cost), a standardized industry metric that allows one to judge the “real” cost of mining, not only cash cost (operating costs) but also previous and ongoing capital expenditures. A mine with a low AISC will be profitable even if gold prices decrease. Alternatively, a high AISC will start growing earnings quicker if prices increase. So, the higher the AISC, the higher the risk and potential reward depending on gold price fluctuation.
Top 10 Gold Stocks
Newmont is the world’s largest gold miner, both as measured by market capitalization and production., especially since the acquisition of Newcrest in May 2023. The Newcrest acquisition has added a lot of gold and copper reserves, mostly in the very safe jurisdictions of Canada and Australia. The company also estimated from the experience of previous mergers that it would create $500M of synergies.
It produced in 2022 6Moz (million ounces) of gold, 35Moz of silver, 16 Blb of copper, and some lead and zinc. Newmont mines are concentrated in North and South America and Australia. The company's AISC (All-In-Sustainable-Cost) was at $1,211/ounce in 2022.
It has reserves of 95 Moz of gold (15.8 years of production). Management estimates that production should stay stable until 2032 at least and has a long history of keeping mineral reserves up, thanks to exploration projects and new discoveries at existing mines.
It turns cash flow positive when gold prices reach around $1,200/ounce and adds $400M in free cash flow for every $100 added to gold prices. That extra cash flow also converts into a rising dividend, with every $100 change in gold price turning into a $0.5-$0.6/share change in the dividend.
Because of its relatively safe jurisdiction and its massive size, Newmont is a good pick among gold miners for investors looking for safety first, a good dividend, and caring little about growth.
Barrick Gold is the second largest gold miner by market cap, with a strong focus on “Tier 1” assets (largest gold mines), in which it is the world’s leader. The company is mostly producing in North America and Africa.
It produced 4.1 million ounces (Moz) of gold in 2022 and 440 million pounds (Mlb) of copper. It has reserves of 76 Moz of gold (18.5 years of production). The company's AISC (All-In-Sustainable-Cost) was around $1,200/ounce.
It plans to keep production growing slowly, with roughly 25% more production by 2029, depending on exploration success.
Source: Barrick Gold
Because mines in non-Western jurisdictions are viewed as riskier, the African part of the portfolio it puts Barrick into a slightly more speculative position. Still, the company is very large and has many mines in many countries, so a single conflict with a local government would not radically affect its profits. Its reserves are very large by industry standards, and production is growing. So, this is a gold miner mega-cap for investors looking for a long-term holding with more growth potential.
The company produces only in North America and Finland and recently merged with Canadian Kirkland Lake.
AEM produced 3.1 million ounces (Moz) of gold in 2022 and 2.3 Moz of silver. Its reserves are 49 Moz of gold (15.8 years of production). The company's AISC (All-In-Sustainable-Cost) was a very low $1,090/ounce. It plans to keep production growing slowly, with roughly 10% more production by 2030.
Agnico-Eagle also has a long history of rising dividends, especially since 2010. In total, the company has distributed $1.4B in dividends to its shareholders
A gold miner of this size with only assets in Western countries is a very rare profile. Considering the relatively long-lasting reserves, Agnico is one of the safer gold miners in the markets, especially considering the growing production. So, investors looking at gold miners solely for safeguarding their capital might prefer Agnico Eagle over other miners.
4. B2B Gold
The company mostly produces in Africa (Mali + Namibia) and the Philippines. It is planning some growth (20% by 2026) through expanding its existing mines (Fekola) and regional exploration.
B2B produced 1 million ounces (Moz) of gold in 2022. It has reserves of 76 Moz of gold (18.5 years of production). The company's AISC (All-In-Sustainable-Cost) was around $1,033/ounce.
Due to its mines' location, this is a riskier bet, with a corresponding discount on the company valuation. That risk is somewhat compensated by very low production costs and no debt. Still, the company is highly reliant on its African production.
Mali has been struggling with Islamist insurgency for many years and has been hesitant in solving it between assistance from former colonial power France and since dissolved Russian mercenary group Wagner. Meanwhile, Namibia is looking at forcing resource producers in the country to sell part of their operation to the state.
So, this is a better fit for investors willing to accept serious jurisdiction risks in exchange for higher dividends and growth.
The company has active mines in multiple locations, by order of importance: Africa (60%), Australia (20%), and Latin America (20%). It also has a large undeveloped deposit in Nevada (8.4 Moz).
AngloGold produced 2.7Moz of gold in 2022 and 3.6Moz of silver. It has massive reserves of 162 Moz of gold (60 years of production); the largest part of these reserves are in the African mines, followed by South America and projects yet to be developed. The company's AISC (All-In-Sustainable-Cost) should be around $1,420/ounce for 2023.
AngloGold's main quality compared to other miners is its massive reserves, making any concerns of the company running out of ore to mine a non-problem.
In parallel to the current operations, it is now looking to develop Africa's largest gold mine in Ghana through a joint venture, fusing AngloGold’s Iduapriem mine to Gold Field’s Tarkwa mine. The merged mine would have an 18-year life of operations, with an AISC of $1,200/ounce.
Sibanye-Stillwater is the world's largest primary producer of platinum, the second largest primary producer of palladium, and the third largest producer of gold. So, while gold is not its only product, precious metals definitely are. Most of the production is in South Africa, with some in the USA as well.
The South African company also has assets in lithium and battery metals (nickel, cobalt, etc.) and sees a strong future for platinum & palladium in the nascent hydrogen economy.
Gold production in South Africa has been disrupted by the trouble of the national electric grid, leading to reduced outputs in H1 2022 and a temporary jump in AISC. Once this passes, the company should be able to get back to 1-1.2 Moz per year.
For 2023, the company expects production to be in the range of:
- 2-1.3Moz of the platinum metal group (including palladium), of which 500-535 Koz from the US operations, to which is added 450-500 Koz from recycling.
- 756-788 Koz of gold.
- 5-10 kt of battery metals.
With its more complex mix of metal and exposition to platinum, Silbanye is a more complex investment than most gold miners. It is equally positioned to benefit from a rise in precious metal prices as from the green transition. Lastly, a good understanding of the situation in South Africa, including protests and power shortages, is required to assess the company's core activities' risks fully.
Nevertheless, after a difficult year in 2022, Sibanye-Stillwater is trading at a severe discount compared to its competition, which might be a good value opportunity.
Regis Resources is an Australian gold miner with 2 active mines in West Australia and one in development in East Australia.
Regis produced 437,000 oz of gold in 2022. It has reserves of 14Moz of gold (32 years of production). The company's AISC (All-In-Sustainable-Cost) was $1,556/ounce for 2022.
Regis Resources plans to grow production to 500,000oz/year by 2025. The Mcphillamys project would add another 200,000oz/year to this, with the final investment decision to be made in 2024.
In the long-term, the company estimated it has a lot of potentials to find new deposits in the area it already exploits, thanks to owning 90% of entire “greenstone belts”, known to be rich in gold, notably the giant 160Moz deposit at Kalgoorlie-Norseman Belt. So, the current reserves might be radically underestimating the potential of the existing mining licenses.
Regis Resources offers large reserves in a very safe jurisdiction, as Australia is notorious for being a mining-friendly jurisdiction, even more than the US or Canada. So this is a company for investors looking for a balanced mix of growth, long-lasting reserves, and long-term potential for much larger growth in the 10+ year horizon.
8. Equinox Gold
It is notoriously hard to grow a mining company. So, for a gold mining company to have a solid growth profile, it is best to pick a relatively small one.
Equinox produced only 25,601 oz of gold in 2018 and 0.6 Moz of gold in 2022. It has reserves of 17 Moz of gold (28.3 years of production). The company's AISC (All-In-Sustainable-Cost) was rather high, from $1,500 to $1,950.
It operates mostly in the Americas (Canada, USA, Mexico, and Brazil). By mining industry standards, it is a new company focused on growth through acquisitions and opening new mines.
It is planning to double current production by the end of the decade, notably through the Greenstone project, planned to be one of Canada's largest gold mines.
Between expensive AISC and aggressive growth requiring massive capex spending, the company needs gold prices to stay above 2,000/oz to really make a profit.
So this is a good company for an aggressive bet on gold prices, similar to using high leverage on gold future. However, it will probably become a severe loss if gold prices stay below $1900/ounce.
There is an alternative to miners when it comes to investing in gold-related stocks.
Royalties companies provide financing to build gold mines in exchange for either a future percentage of the total revenues of the project or “free” delivery of a percentage of the gold produced.
This usually makes royalties companies less sensitive to gold price fluctuation as they do not pay themselves the exploitation costs but get a part of the miner turnover (and not earnings).
This business model exists because banks and other lenders are skeptical of new mining projects and often lack the skills and experience to judge them well.
So, royalties companies act as a bridge between the financial markets and gold miners looking to avoid too serious dilution. With most royalties “perpetual” on a mining site, they also benefit from miners' efforts to keep finding new reserves and keep aging mines operating.
Franco-Nevada was a pioneer in creating the mining royalty sector. It has had a CAGR of 17% since its inception and offers a large diversification of assets and jurisdictions:
- A bit more than half of its royalties come from gold, but it also dabbles in silver, oil, gas, and other resources.
- 41% is located in North America, and another 50% is in Latin America.
Reserves of the royalties-producing mines can support around 17 years of operation. Franco Nevada has in total 419 assets, of which 113 are producing, 45 are in development, and 261 are in the exploration stage.
Combining its reputation, track record, and focus on high-quality jurisdiction, Franco-Nevada is a strong way to diversify gold investment while focusing on relatively low-risk assets. It has also been remarkably compounded over time, with the stock increasing almost 10x in 15 years.
This excellent reputation has, however, a downside, as the company is often suffering from rather high valuation, reflecting the quality of the business and its perception by markets as a superior alternative to most miners and mining ETFs.
While Franco Nevada is a very mature royalty company, new competitors have imitated it and entered the sector by looking at projects beyond the Americas.
Sandstorm grew its asset portfolio from 3 in 2009 to 250 in 2022.
Sandstrom’s assets currently produce 93,000 ounces of gold, with a target of 125-160 Koz in 2024-2028. Revenues come mostly from gold and silver, with gold expected to represent 3/4th of the long-term royalties.
Sandstorm's key strategy is to focus on the lowest-cost mines, with 54% of its assets in the cheapest quartile by AISC (Franco-Nevada has just 11% in the cheapest quartile). This often also means looking at more risky jurisdictions, where labor is cheaper and even promising deposits struggle more to raise capital.
Its largest asset is Hod Maden in Turkey (12% of Net Asset Value / NAV. Other large assets are in Peru, South Africa, Brazil, Chile, and Mongolia. Overall, Sandstorm's focus on cheap production costs makes it more profitable and exposes it to risky jurisdictions.
This makes Sandstorm Gold an option for investors seeking access to a diversified panel of low-cost gold miners. While almost none of the assets are in the best jurisdictions, the overall diversification and presence on 3 continents should offer some protection.
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