Mining stocks rise tracking gold prices

By Staff Writer / January 15, 2022 / Article Link

Mining companies enjoyed a boosted performance as gold prices continued to rise this week as well. This lifted Canada's main stock index on Wednesday after data showed inflation in October rose in line with the market and central bank expectations.

At 9:45 a.m. ET (1445 GMT), the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was up 23.97 points, or 0.11%, at 21,741.13.

Canada's annual inflation rate accelerated again in October to 4.7%, driven by a sharp rises in gasoline and housing prices, data showed, with analysts expecting more heat ahead.

Gold prices rose on Wednesday as inflation worries boosted demand for the safe-haven metal. That contributed to gains in the overall materials sector .GSPTTMT, which includes precious and base metals miners and fertilizer companies, post gains of nearly 1%.

As a result, mining stocks of Canadian gold miners registered modest gains as the outlook remains overly positive.

Barrick Gold was one of the biggest winners with a strong position. The large-cap gold producer boasts an S&P credit rating of BBB. Despite a fall in the Q3 revenues of 2% to US$2.8 billion, net earnings rose marginally by 1% to US$1.4 billion. Currently, 17 analysts rate this gold stock as a strong buy, buy, or a hold. Their 12-month price target is US$27.40 per share, or 33% higher than the recent quotation of US$20 and change per share.

Another miner with a relatively strong growth profile is Equinox Gold. This mining stock is susceptible to gold price volatility as the company has seven producing mines and is working on five growth projects.

Equinox is currently focusing on developing its Santa Luz project. This past-producing mine shows excellent prospects for producing gold. Management expects production to begin in Q1 2022. In partnership with Orion, Equinox Gold is also building the largest gold mine in Canada — the Greenstone project. Initial estimations project that Greenstone will add approximately 240,000 ounces per year to Equinox’s production. This project alone will add 40% of production compared to its 2021 levels. However, the first gold pour for Greenstone isn’t expected until the first half of 2024.

If Equinox succeeds in growing production by 93% per year from 2021 to 2024, this could significantly boost its profitability short and long-term even if gold prices fall.