Spot gold prices have entered into a bearish cycle for the first time in 2021, losing about 6% to fall below $1,800 per ounce. After climbing roughly 22% in 2020, gold prices settled for the first time above $2,000. Since then, containment of COVID-10 cases and gradual economic recovery has cooled off investors’ interest in gold and silver.
In the last trading session on Wednesday, Gold (XAU/USD) bounced-off a critical horizontal trendline support at $1,765 on Wednesday.
Subsequently, this saw the Gold Miners Index (GDX) struggle with only a 3% year-to-date return. As recovery from the pandemic continues, analysts expect to see less margin expansion for mid-tier and junior gold miners next year. On the upside, many Canadian gold miners are already pricing in $1,700/oz and are sporting their most attractive valuations since the COVID-19 Crash lows. While the majority of gold stocks remain undervalued at the moment, this makes them worthwhile for investors to wait. The following gold miners are trading at very reasonable levels as we head into earnings season: Newmont (NEM), SSR Mining (SSRM), and B2Gold (BTG). These gold producers all have margins of 50% or higher with NEM being the most compelling for risk-averse investors. The miner has a $45BB market cap, a 2.75% yield, and is a member of the S&P-500.
SSR Mining is a mid-tier gold miner with a strong focus on its Nevada Mine, a mine in Saskatchewan, Canada, and some silver projects in Argentina at its Puna Mine. After the company merged with Alacer Gold, a gold producer based out of Turkey, it improved its status to a 750,000~ ounce producer.
As investors are waiting for a re-rating for the stock, most mid-tier and junior gold producers continue to trade closer to 10x earnings. Now it becomes imperative that managers can navigate bear markets for the gold price to be able to return significant value to shareholders. It is possible that decreasing interest pushes them to valuations that rarely appear outside of bear markets. For this reason, this time is suitable for diversification and investment in various gold stocks.
One other gold miner that has had a generally positive quarter thanks to higher production and revenues is Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE, US$4.80). Though free cash flow fell by almost 50% from the previous quarter on higher costs and capex, it continued its strong turnaround and on several criteria is better placed than its peers.
The current dip in the market has also opened the opportunity to acquire some mining stocks from tier 1 gold producers. According to analysts, senior gold miners Barrick Gold Corp. (ABX:TSX; GOLD:NYSE, US$22.14), Newmont Corp. (NEM:NYSE, 58.93) and Franco-Nevada Corp. (FNV:TSX; FNV:NYSE, US$121.16), are all buys at the moment.