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Buy These 5 Gold Stocks to Ride on Solid Price & Demand Trends
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The prospects for the Zacks Mining - Gold industry look bright at the moment, given the 19% gain seen in gold prices so far this year and the bullion attaining record highs boosted by expectations of the Federal Reserve’s rate cuts.
With gold prices expected to increase further on demand-supply imbalance, companies like Agnico Eagle Mines (AEM - Free Report) , Franco-Nevada Corporation (FNV - Free Report) , Royal Gold, Inc. (RGLD - Free Report) , Eldorado Gold Corporation (EGO - Free Report) and New Gold Inc. (NGD - Free Report) are well-poised to capitalize on this, backed by their strong balance sheets, efforts to lower costs and growth initiatives.
About the Industry
The Zacks Mining - Gold industry comprises companies engaged in extracting gold from mines. These mines may be either underground or open pits. Mining is a long and complex process, and requires significant financial resources. It involves exploring to evaluate the deposit's size; assessing ways to extract and process the ore efficiently, safely and responsibly; and developing the mine before the actual mining process. It usually takes 10-20 years for a gold mine to produce material that can finally be refined. Nowadays, industry players use a range of sophisticated techniques to extract gold and convert it into dore bars, an alloy of gold and silver, alongside other impurities. These are then sent for purification, after which gold is purchased as bars or coins or used in jewelry or other purposes.
Major Trends Shaping the Future of the Mining-Gold Industry
Solid Trend in Gold Prices to Drive Industry Growth: Gold prices have mainly remained above the $2,000 threshold this year, delivering a 19.3% year-to-date gain, surpassing the performance of most major asset classes. The rise has also outscored the 12.8% gain witnessed by the bullion in 2023. Several factors have contributed to this solid performance in 2024, including heightened geopolitical tensions, a depreciating U.S. dollar, the potential for monetary policy easing and ongoing central bank purchases. Gold peaked at an all-time high of $2,484 per ounce on Jul 17, driven by increased optimism that the Federal Reserve would lower rates as early as September. This was triggered by weaker-than-expected U.S. inflation data. Also, expectations of rate cuts by major central banks in Europe and Asia boosted the demand for gold across those regions. Analysts expect this momentum to continue and are projecting gold prices to scale to around $3,000 an ounce, backed by solid demand amid limited supply prospects.
Efforts to Counter High Costs to Sustain Margins: The industry has been facing a shortage of skilled workforce, causing a spike in wages. Industry players are persistently grappling with escalating production costs, including electricity, water, and material and supply-chain issues. Since the industry cannot control gold prices, it focuses on improving the sales volume and the operating cash flow, and lowering unit net cash costs. The industry participants are opting for alternate energy sources, such as solar or wind farms, to minimize fuel-price volatility and secure supply. Miners are committed to cost-reduction strategies and digital innovation to drive operating efficiencies.
Demand & Supply Imbalance to Support Prices: Depleting resources, declining supply in old mines and the lack of new mines have been inherent threats to the industry. Due to the scarcity of discoveries and exhaustive existing resources, miners prefer building up reserves through acquisitions rather than digging new ones that are risky and capital-intensive. On the demand side, the use of gold in energy, healthcare and technology is rising. India and China account for around 50% of consumer gold demand. Economic strength in India is leading to wealth-driven buying. The yellow metal has long been considered a safe-haven investment in financial or political uncertainty. Central banks, particularly China, have been ramping up reserves held in gold due to currency depreciation, and geopolitical and economic risks. In 2022, central banks added 1,082 tons of gold, marking the highest annual purchase on record, followed by 1,037 tons of gold purchases in 2023. According to the 70 responses to the 2024 Central Bank Gold Reserves survey, 29% of central banks plan to increase their gold reserves in the next 12 months. This is the highest projection since the initiation of the survey in 2018. Therefore, there will be an eventual demand-supply imbalance, which is likely to drive gold prices.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. The Zacks Mining - Gold Industry, which is a 35-stock group within the broader Zacks Basic Materials sector, currently carries a Zacks Industry Rank #34, which places it in the top 14% of 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Versus S&P 500 & Sector
The Mining-Gold Industry has outperformed the sector over the past year but underperformed the Zacks S&P 500 composite over the same time frame. The stocks in the industry have collectively grown 17% compared with the broader sector’s rise of 1.1%. The S&P 500 has jumped 21.8% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA, a commonly used multiple for valuing gold-mining companies, we see that the industry is currently trading at 9.41X compared with the S&P 500’s 19.84X and the Basic Material sector’s trailing 12-month EV/EBITDA of 11.85X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) TTM Ratio
Enterprise Value/EBITDA (EV/EBITDA) TTM Ratio
Over the last five years, the industry traded as high as 36.70X and as low as 4.97X, the median being 8.65X.
5 Mining-Gold Stocks to Bet on
Franco-Nevada: FNV appears on a promising long-term trajectory, backed by a healthy portfolio of streaming and royalty agreements on several properties mined by some of the most reputable mining companies in the world. The company is debt-free, and uses its free cash flow to expand the portfolio and pay out dividends. Given its focus on cost management, FNV has been generating high margins. Franco-Nevada has been enhancing its portfolio without adding significant overhead. The company recently acquired a gold stream in the Cascabel project located in Ecuador from SolGold plc. Cascabel ranks among the best copper-gold development projects in the world and can contribute to its growth pipeline while increasing its precious metal exposure and asset diversification. FNV shares have gained 3% in the past three months.
This Toronto, Canada-based gold-focused royalty and stream company has a long-term estimated earnings growth rate of 1.8%. The Zacks Consensus Estimate for earnings for fiscal 2024 has moved up 3% over the past 60 days. FNV has a trailing four-quarter earnings surprise of 10.5%, on average. The company currently flaunts a Zacks Rank #1 (Strong Buy).
Royal Gold: The company's strong balance sheet, focus on reducing debt levels and healthy cash position enable it to invest in properties with exploration and production upside. Earlier this year, RGLD hiked its dividend payout 7% — the 23rd consecutive year of paying increased dividends. Notably, its debt-to-capital ratio was at 0.05 at the end of first-quarter 2024, with available liquidity of around $1 billion. In February 2024, the company entered a “Processing Cost Support Agreement” with Centerra Gold, which is expected to derive significant long-term value from the Mount Milligan mine. Royal Gold will receive approximately $125 million in near-term consideration, comprising $24.5 million of cash and 50,000 ounces of gold, and a long-term free cash flow interest in the Mount Milligan Mine. RGLD, in return, will provide long-term cost support to Centerra to invest and maximize the value of the large mineral endowment and increase the mine life of Mount Milligan. Its shares have risen 13.7% over the past three months.
The Zacks Consensus Estimate for Royal Gold’s fiscal 2024 earnings indicates year-over-year growth of 31.7%. The estimate has moved up 3% over the past 60 days. RGLD has a trailing four-quarter earnings surprise of 4.7%, on average. The company presently sports a Zacks Rank #1 and has a long-term earnings growth estimate of 26.5%.
Price & Consensus: RGLD
Eldorado Gold: The company produced 117,111 ounces of gold in the first quarter of 2024, up 5% year over year, reflecting higher gold production at most sites, notably at Lamaque (up 12%) and Olympias (up 14%). The company’s shares have gained 11.6% in the past three months. EGO expects production between 505,000 and 555,000 ounces of gold in 2024. The mid-point of the range suggests a 9% year-over-year increase. Costs and schedule are on track for its development project, Skouries, with commercial production expected to commence at the end of 2025. March 2024 marked five years since the start of commercial production at the Lamaque Complex in Quebec. The complex produced 848,014 ounces of gold, which exceeded EGO’s expectations by 32% compared with the initial pre-feasibility study of 644,100 ounces. With the inaugural reserve expected at Ormaque later this year, the prospects of the Lamaque Complex are solid.
Eldorado Gold is based in Vancouver, Canada. The Zacks Consensus Estimate for the company’s fiscal 2024 earnings has moved up 1% over the past 60 days. The consensus estimate indicates year-over-year growth of 93%. The company has a long-term earnings growth estimate of 51%. EGO has a trailing four-quarter earnings surprise of 430.7%, on average. The company currently flaunts a Zacks Rank #1.
Price & Consensus: EGO
New Gold: In the first quarter of 2024, the company’s New Afton mine delivered a strong performance, producing 18,179 ounces of gold and 13.3 million pounds of copper, in line with expectations. The Rainy River mine produced 52,719 ounces of gold. At Rainy River, the underground Main Zone is on target to produce its first ore in the fourth quarter of 2024. The company is on track to meet the 2024 consolidated production forecast of 310,000-350,000 ounces of gold and 50-60 million pounds of copper at all-in-sustaining costs of $1,240-$1,340 per gold ounce sold. Rainy River gold production is likely to expand dramatically over the next three years as underground mill feed increases. NGD recently signed an agreement relating to its strategic partnership with the Ontario Teachers’ Pension Plan for the New Afton Mine that will increase its effective free cash flow interest in the mine to 80.1%. This transaction is projected to result in a significant increase in attributable life-of-mine cash flow while keeping New Gold's balance sheet strong and financially liquid. Continued focus on operational discipline and investment in growth projects will aid the company. NGD shares have appreciated 32% in the past three months.
The Zacks Consensus Estimate for the Toronto, Canada-based company’s 2024 earnings has moved up 7% over the past 60 days. The consensus estimate indicates year-over-year growth of 114%. NGD presently sports a Zacks Rank #1.
Price & Consensus: NGD
Agnico Eagle Mines: The company recently completed an updated mineral reserve and mineral resource estimate, and an updated life of mine plan for its Detour Lake mine. With the development of an underground mine to complement the existing open pit mine, and the mill optimization, AEM sees the potential to increase the Detour Lake mine's overall production to an average of approximately one million ounces of gold per year over 14 years starting in 2030. This is in sync with AEM’s strategy to unlock the value of its assets in the Abitibi region, which is considered one of the best in the world for gold mining. The company continues to lower debt levels while focusing on capital discipline and cost control, investing in its project pipeline, and providing returns to shareholders. Agnico Eagle has made a string of recent equity investments to grow its holdings of junior mining companies, given its recent focus on increasing base metal exposure.
The Zacks Consensus Estimate for the Toronto, Canada-based company’s 2024 earnings has moved up 4% over the past 60 days. The estimate indicates year-over-year growth of 47%. AEM has a trailing four-quarter earnings surprise of 16.5%, on average. The company currently has a long-term estimated earnings growth of 28.2% and a Zacks Rank #2 (Buy).
Price & Consensus: AEM
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Buy These 5 Gold Stocks to Ride on Solid Price & Demand Trends
The prospects for the Zacks Mining - Gold industry look bright at the moment, given the 19% gain seen in gold prices so far this year and the bullion attaining record highs boosted by expectations of the Federal Reserve’s rate cuts.
With gold prices expected to increase further on demand-supply imbalance, companies like Agnico Eagle Mines (AEM - Free Report) , Franco-Nevada Corporation (FNV - Free Report) , Royal Gold, Inc. (RGLD - Free Report) , Eldorado Gold Corporation (EGO - Free Report) and New Gold Inc. (NGD - Free Report) are well-poised to capitalize on this, backed by their strong balance sheets, efforts to lower costs and growth initiatives.
About the Industry
The Zacks Mining - Gold industry comprises companies engaged in extracting gold from mines. These mines may be either underground or open pits. Mining is a long and complex process, and requires significant financial resources. It involves exploring to evaluate the deposit's size; assessing ways to extract and process the ore efficiently, safely and responsibly; and developing the mine before the actual mining process. It usually takes 10-20 years for a gold mine to produce material that can finally be refined. Nowadays, industry players use a range of sophisticated techniques to extract gold and convert it into dore bars, an alloy of gold and silver, alongside other impurities. These are then sent for purification, after which gold is purchased as bars or coins or used in jewelry or other purposes.
Major Trends Shaping the Future of the Mining-Gold Industry
Solid Trend in Gold Prices to Drive Industry Growth: Gold prices have mainly remained above the $2,000 threshold this year, delivering a 19.3% year-to-date gain, surpassing the performance of most major asset classes. The rise has also outscored the 12.8% gain witnessed by the bullion in 2023. Several factors have contributed to this solid performance in 2024, including heightened geopolitical tensions, a depreciating U.S. dollar, the potential for monetary policy easing and ongoing central bank purchases. Gold peaked at an all-time high of $2,484 per ounce on Jul 17, driven by increased optimism that the Federal Reserve would lower rates as early as September. This was triggered by weaker-than-expected U.S. inflation data. Also, expectations of rate cuts by major central banks in Europe and Asia boosted the demand for gold across those regions. Analysts expect this momentum to continue and are projecting gold prices to scale to around $3,000 an ounce, backed by solid demand amid limited supply prospects.
Efforts to Counter High Costs to Sustain Margins: The industry has been facing a shortage of skilled workforce, causing a spike in wages. Industry players are persistently grappling with escalating production costs, including electricity, water, and material and supply-chain issues. Since the industry cannot control gold prices, it focuses on improving the sales volume and the operating cash flow, and lowering unit net cash costs. The industry participants are opting for alternate energy sources, such as solar or wind farms, to minimize fuel-price volatility and secure supply. Miners are committed to cost-reduction strategies and digital innovation to drive operating efficiencies.
Demand & Supply Imbalance to Support Prices: Depleting resources, declining supply in old mines and the lack of new mines have been inherent threats to the industry. Due to the scarcity of discoveries and exhaustive existing resources, miners prefer building up reserves through acquisitions rather than digging new ones that are risky and capital-intensive. On the demand side, the use of gold in energy, healthcare and technology is rising. India and China account for around 50% of consumer gold demand. Economic strength in India is leading to wealth-driven buying. The yellow metal has long been considered a safe-haven investment in financial or political uncertainty. Central banks, particularly China, have been ramping up reserves held in gold due to currency depreciation, and geopolitical and economic risks. In 2022, central banks added 1,082 tons of gold, marking the highest annual purchase on record, followed by 1,037 tons of gold purchases in 2023. According to the 70 responses to the 2024 Central Bank Gold Reserves survey, 29% of central banks plan to increase their gold reserves in the next 12 months. This is the highest projection since the initiation of the survey in 2018. Therefore, there will be an eventual demand-supply imbalance, which is likely to drive gold prices.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. The Zacks Mining - Gold Industry, which is a 35-stock group within the broader Zacks Basic Materials sector, currently carries a Zacks Industry Rank #34, which places it in the top 14% of 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Versus S&P 500 & Sector
The Mining-Gold Industry has outperformed the sector over the past year but underperformed the Zacks S&P 500 composite over the same time frame. The stocks in the industry have collectively grown 17% compared with the broader sector’s rise of 1.1%. The S&P 500 has jumped 21.8% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA, a commonly used multiple for valuing gold-mining companies, we see that the industry is currently trading at 9.41X compared with the S&P 500’s 19.84X and the Basic Material sector’s trailing 12-month EV/EBITDA of 11.85X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) TTM Ratio
Enterprise Value/EBITDA (EV/EBITDA) TTM Ratio
Over the last five years, the industry traded as high as 36.70X and as low as 4.97X, the median being 8.65X.
5 Mining-Gold Stocks to Bet on
Franco-Nevada: FNV appears on a promising long-term trajectory, backed by a healthy portfolio of streaming and royalty agreements on several properties mined by some of the most reputable mining companies in the world. The company is debt-free, and uses its free cash flow to expand the portfolio and pay out dividends. Given its focus on cost management, FNV has been generating high margins. Franco-Nevada has been enhancing its portfolio without adding significant overhead. The company recently acquired a gold stream in the Cascabel project located in Ecuador from SolGold plc. Cascabel ranks among the best copper-gold development projects in the world and can contribute to its growth pipeline while increasing its precious metal exposure and asset diversification. FNV shares have gained 3% in the past three months.
This Toronto, Canada-based gold-focused royalty and stream company has a long-term estimated earnings growth rate of 1.8%. The Zacks Consensus Estimate for earnings for fiscal 2024 has moved up 3% over the past 60 days. FNV has a trailing four-quarter earnings surprise of 10.5%, on average. The company currently flaunts a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: FNV
Royal Gold: The company's strong balance sheet, focus on reducing debt levels and healthy cash position enable it to invest in properties with exploration and production upside. Earlier this year, RGLD hiked its dividend payout 7% — the 23rd consecutive year of paying increased dividends. Notably, its debt-to-capital ratio was at 0.05 at the end of first-quarter 2024, with available liquidity of around $1 billion. In February 2024, the company entered a “Processing Cost Support Agreement” with Centerra Gold, which is expected to derive significant long-term value from the Mount Milligan mine. Royal Gold will receive approximately $125 million in near-term consideration, comprising $24.5 million of cash and 50,000 ounces of gold, and a long-term free cash flow interest in the Mount Milligan Mine. RGLD, in return, will provide long-term cost support to Centerra to invest and maximize the value of the large mineral endowment and increase the mine life of Mount Milligan. Its shares have risen 13.7% over the past three months.
The Zacks Consensus Estimate for Royal Gold’s fiscal 2024 earnings indicates year-over-year growth of 31.7%. The estimate has moved up 3% over the past 60 days. RGLD has a trailing four-quarter earnings surprise of 4.7%, on average. The company presently sports a Zacks Rank #1 and has a long-term earnings growth estimate of 26.5%.
Price & Consensus: RGLD
Eldorado Gold: The company produced 117,111 ounces of gold in the first quarter of 2024, up 5% year over year, reflecting higher gold production at most sites, notably at Lamaque (up 12%) and Olympias (up 14%). The company’s shares have gained 11.6% in the past three months. EGO expects production between 505,000 and 555,000 ounces of gold in 2024. The mid-point of the range suggests a 9% year-over-year increase. Costs and schedule are on track for its development project, Skouries, with commercial production expected to commence at the end of 2025. March 2024 marked five years since the start of commercial production at the Lamaque Complex in Quebec. The complex produced 848,014 ounces of gold, which exceeded EGO’s expectations by 32% compared with the initial pre-feasibility study of 644,100 ounces. With the inaugural reserve expected at Ormaque later this year, the prospects of the Lamaque Complex are solid.
Eldorado Gold is based in Vancouver, Canada. The Zacks Consensus Estimate for the company’s fiscal 2024 earnings has moved up 1% over the past 60 days. The consensus estimate indicates year-over-year growth of 93%. The company has a long-term earnings growth estimate of 51%. EGO has a trailing four-quarter earnings surprise of 430.7%, on average. The company currently flaunts a Zacks Rank #1.
Price & Consensus: EGO
New Gold: In the first quarter of 2024, the company’s New Afton mine delivered a strong performance, producing 18,179 ounces of gold and 13.3 million pounds of copper, in line with expectations. The Rainy River mine produced 52,719 ounces of gold. At Rainy River, the underground Main Zone is on target to produce its first ore in the fourth quarter of 2024. The company is on track to meet the 2024 consolidated production forecast of 310,000-350,000 ounces of gold and 50-60 million pounds of copper at all-in-sustaining costs of $1,240-$1,340 per gold ounce sold. Rainy River gold production is likely to expand dramatically over the next three years as underground mill feed increases. NGD recently signed an agreement relating to its strategic partnership with the Ontario Teachers’ Pension Plan for the New Afton Mine that will increase its effective free cash flow interest in the mine to 80.1%. This transaction is projected to result in a significant increase in attributable life-of-mine cash flow while keeping New Gold's balance sheet strong and financially liquid. Continued focus on operational discipline and investment in growth projects will aid the company. NGD shares have appreciated 32% in the past three months.
The Zacks Consensus Estimate for the Toronto, Canada-based company’s 2024 earnings has moved up 7% over the past 60 days. The consensus estimate indicates year-over-year growth of 114%. NGD presently sports a Zacks Rank #1.
Price & Consensus: NGD
Agnico Eagle Mines: The company recently completed an updated mineral reserve and mineral resource estimate, and an updated life of mine plan for its Detour Lake mine. With the development of an underground mine to complement the existing open pit mine, and the mill optimization, AEM sees the potential to increase the Detour Lake mine's overall production to an average of approximately one million ounces of gold per year over 14 years starting in 2030. This is in sync with AEM’s strategy to unlock the value of its assets in the Abitibi region, which is considered one of the best in the world for gold mining. The company continues to lower debt levels while focusing on capital discipline and cost control, investing in its project pipeline, and providing returns to shareholders. Agnico Eagle has made a string of recent equity investments to grow its holdings of junior mining companies, given its recent focus on increasing base metal exposure.
The Zacks Consensus Estimate for the Toronto, Canada-based company’s 2024 earnings has moved up 4% over the past 60 days. The estimate indicates year-over-year growth of 47%. AEM has a trailing four-quarter earnings surprise of 16.5%, on average. The company currently has a long-term estimated earnings growth of 28.2% and a Zacks Rank #2 (Buy).
Price & Consensus: AEM