Gold Hits Record Highs: Is It Time to Buy Gold Mining Stocks?

Gold prices soared to an all-time high on Monday, driven by a combination of factors, including expectations of U.S. rate cuts, China's stimulus measures, and geopolitical tensions, which boosted demand. Spot gold rose by 0.9% to $2,435.96 per ounce after hitting a record $2,449.89 earlier. U.S. gold futures also closed 0.9% higher at $2,438.50.

Recent data showing lower-than-expected U.S. consumer price increases in April has boosted hopes for a rate cut in September, further supporting gold prices. RJO Futures’ senior market strategist, Daniel Pavilonis, expects gold to approach $2,500 soon due to investor fear of missing out. Meanwhile, silver prices also surged, climbing 2.2% to $32.17, the highest in over 11 years.

These factors, coupled with gold's scarcity and intrinsic value, have made it an appealing investment in today's uncertain economic climate. With gold reaching a new record high, an increasing number of investors are seeking to capitalize on this potentially lucrative opportunity.

Let’s examine why Newmont Corp., Barrick Gold, Franco-Nevada, and Dundee Precious Metals (DPMLF) could be wise investments now.

Newmont Corporation (NEM)

Newmont Corporation (NEM) is the world’s leading gold mining company and a producer of other precious and industrial metals, including copper, silver, zinc, and lead. NEM has the largest gold reserve base in the metals mining industry, underpinned by its world-class ore bodies in top-tier locations.

In line with its strategic financial initiatives, on April 25, 2024, Newmont announced the sale of its financing facilities related to the Fruta del Norte gold mine in Ecuador to Lundin Gold Inc. for $330 million. This transaction, set to be completed in two tranches by September 30, 2024, allows Newmont to retain exposure to the operation through its equity interest in Lundin Gold.

Moreover, as part of its acquisition of Newcrest and a broader strategy to generate lasting value, the company has committed to delivering at least $2 billion in near-term cash improvements through portfolio optimization within the next two years. The early repayment of these facilities marks a significant step towards achieving this goal, reinforcing Newmont's trajectory towards a more profitable and resilient future.

In terms of forward non-GAAP PEG, NEM is trading at 1.44x, 10% lower than the industry average of 1.60x. Likewise, its forward EV/EBITDA multiple of 7.58 is 13.1% lower than the industry average of 8.72.

NEM’s sales increased 50.2% year-over-year to $4.02 billion for the fiscal first quarter that ended March 31, 2024. Its net cash from operating activities rose 61.3% from the prior-year quarter to $776 million. NEM’s adjusted net income came in at $630 million and $0.55 per share, representing 96.9% and 37.5% year-over-year improvements. Also, its adjusted EBITDA stood at $1.69 billion, up 71.1% year-over-year.

During the quarter, NEM produced 1.7 million attributable ounces of gold and 489 thousand gold equivalent ounces (GEOs) from copper, silver, lead, and zinc. This growth was largely driven by the production of 1.4 million gold ounces from Newmont's Tier 1 Portfolio.

Analysts expect NEM’s revenue for the second quarter (ending June 2024) to increase 53.1% year-over-year to $4.11 billion, while its EPS is expected to improve 68.1% from the year-ago value to $0.55 in the same period.

The stock’s trailing-12-month gross profit and EBITDA margins of 32.44% and 28.31% are 14.9% and 72.2% higher than the 28.23% and 16.44% industry averages, respectively. Its trailing-12-month Capex/Sales of 22.73% compares with the industry average of 7.76%.

NEM’s stock is already up more than 37% over the past three months and has gained nearly 2.4% year-to-date. Bolstered by its strong portfolio of Tier 1 gold and copper operations, NEM is poised to maintain its gold production at approximately 6.9 million ounces. With projected costs of sales (CAS) for gold at $1,050 per ounce and an all-in-sustaining cost (AISC) of $1,400 per ounce, NEM is well positioned to capitalize on higher gold prices.

Barrick Gold Corporation (GOLD)

Barrick Gold Corporation (GOLD), based in Toronto, Canada, is engaged in the exploration, mine development, production, and sale of gold and copper properties. The company holds ownership interests in producing gold mines across various countries, including Argentina, Canada, Côte d'Ivoire, the Democratic Republic of Congo, the Dominican Republic, Mali, Tanzania, and the United States.

On May 1, 2024, Barrick Gold (International Holdings) Ltd., a subsidiary of GOLD, entered into an exploration earn-in agreement with Geophysx Jamaica Ltd. This agreement provides GOLD with access to approximately 4,000 square kilometers of consolidated land positions in Jamaica. The strategic partnership is expected to enhance GOLD's exploration capabilities and potentially lead to significant new discoveries, aligning well with the company’s ongoing operations and growth strategy.

In another strategic move, GOLD’s Nevada Gold Mines celebrated the official opening of its new underground mine, Goldrush, on April 25. The Goldrush Project is projected to produce 130,000 ounces of gold in its initial year, contributing to the overall value and production capacity of Nevada Gold Mines (NGM). Barrick holds a 61.5% ownership stake in this project through a joint venture with Newmont, which owns the remaining 38.5%.

Such strategic partnerships provide a stable foundation for sustained growth and capital investment, allowing the company to fully benefit from favorable market conditions in the gold sector.

In terms of forward non-GAAP P/E, GOLD is trading at 16.74x, 8.6% lower than the industry average of 18.31x. The stock’s forward EV/EBITDA of 6.70x is 23.2% lower than the 8.72x industry average. Furthermore, the stock’s forward Price/Cash Flow multiple of 6.70 is 27.6% lower than the industry average of 9.25x.

In the fiscal first quarter that ended March 31, 2024, GOLD’s revenues increased 3.9% year-over-year to $2.75 billion. Its adjusted EBITDA grew 7% from the year-ago value to $1.27 billion with an attributable margin of 41%. GOLD’s adjusted net earnings amounted to $333 million or $0.19 per share, reflecting an increase of 34.8% and 35.7%, respectively, in the same period.

Also, it produced 940 thousand gold ounces during the quarter, which was slightly below compared to 952 thousand in the prior year.

The consensus EPS estimate of $0.25 for the fiscal second quarter (ending June 2024) represents a 33.9% improvement year-over-year. The consensus revenue estimate of $3.22 billion for the ongoing quarter indicates a 13.6% increase from the same period last year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

In addition, GOLD’s trailing-12-month gross profit margin and ROCE of 31.15% and 6.27% are 10.4% and 7.4% higher than the industry averages of 28.23% and 5.83%, respectively. Likewise, its trailing-12-month 12.58% net income margin compares to the industry average of 4.72%.

Further, the company anticipates a steady increase in gold production throughout the year, fueled by the completion of the Pueblo Viejo plant expansion and the restart of operations at the Porgera mine. Copper production is also on course to meet the full year's guidance. These initiatives position Barrick to capitalize on high market prices with elevated output. In terms of price performance, the stock has surged more than 20% over the past three months.

Franco-Nevada Corporation (FNV)

Headquartered in Toronto, Canada, Franco-Nevada Corporation (FNV) operates as a gold-focused royalty and streaming company with a presence in South America, Central America, Mexico, the United States, Canada, and internationally. Operating through the Mining and Energy segments, it manages its portfolio with a primary focus on precious metals, including gold, silver, and platinum group metals.

On May 1, the company declared a quarterly dividend of $0.36 per share payable to its shareholders on June 27, 2024. With a four-year average dividend yield of 0.89% and the current dividend of $1.44 translating to a 1.16% yield, the company continues to provide consistent returns to its investors. Also, it has a payout ratio of 39.20%.

During the fiscal first quarter, which ended March 31, 2024, FNV reported total revenues of $256.80 million and a gross profit of $165 million. The company achieved an adjusted EBITDA of $216.10 million, with a margin of 84.2%, compared to an adjusted EBITDA margin of 83% in the prior-year quarter. FNV’s adjusted net income came in at $146 million and $0.76 per share in the same period. Also, its cash and cash equivalents at the end of the period stood at $1.35 billion, up 8.3% year-over-year.

Looking ahead, analysts expect FNV’s revenue to reach $1.11 billion in the fiscal year ending December 2024, while its EPS is forecasted to be $3.20. Moreover, the company has topped the EPS estimates in all of the trailing four quarters, which is excellent.

For the fiscal year 2025, the consensus revenue and EPS estimates of $1.24 billion and $3.76 indicate increases of 12.3% and 17.5%, respectively.

In addition, the stock’s trailing-12-month gross profit and EBITDA margins of 85.59% and 83.64% are 203.2% and 408.9% higher than the industry averages of 28.23% and 16.44%, respectively. Likewise, its levered FCF margin of 50.04% compares with the industry average of 5.29%.

The company's strong growth outlook is driven by mine expansions and new mine starts, with expectations of up to nine new mines contributing from 2024 to 2028. FNV also holds significant long-term optionality in gold, copper, and nickel, with exposure to approximately 66,800 square kilometers of mineral-rich territory.

Additionally, FNV's financial resilience, characterized by a lack of debt, $2.4 billion in available capital, and a robust pipeline of precious metal opportunities, positions it favorably to leverage high gold prices for sustained growth and profitability.

FNV’s shares have gained nearly 17.1% over the past three months and more than 12% year-to-date.

Dundee Precious Metals Inc. (DPMLF)

Dundee Precious Metals Inc. (DPMLF), headquartered in Toronto, Canada, acquires, explores, develops, mines, and processes precious metals. The company owns and operates a mine that produces gold, copper, and silver.

On May 7, the company announced a dividend of $0.04 per common share for the second quarter, payable to its shareholders on July 15, 2024. The company maintains a four-year average dividend yield of 1.99%, with the current annual dividend of $0.16 translating to the same yield. DPM has demonstrated consistent returns to investors, with dividend payouts growing at an impressive 16.9% CAGR over the past three years.

On March 7, Dundee Precious announced the sale of its 98% interest in the Tsumeb smelter to a subsidiary of Sinomine for $49 million in cash, subject to normal adjustments. DPMLF will also receive $17.9 million from IXM S.A. for estimated metal recoverables. The transaction, pending customary approvals, is expected to close in Q3 2024. This sale will enhance DPMLF's liquidity and focus on core operations.

DPMLF’s forward EV/ EBITDA and EV/EBIT multiples of 3.10 and 4.08 are 64.5% and 70.1% lower than the industry averages of 8.72x and 13.61x, respectively. Also, its forward EV/Sales ratio of 1.57 is 9.8% lower than the industry average of 1.75x.

DPMLF reported revenues of $123.80 million for the fiscal first quarter that ended March 31, 2024. Its earnings before income taxes rose 7% from the prior-year quarter to $52.60 million, while its adjusted EBITDA stood at $65.90 million. The company’s net earnings came in at $45.70 million, while its earnings per share remained flat year-over-year at $0.25. Also, its free cash flow increased 5% year-over-year to $68.20 million in the same period.

During the first three months of the year, DPMLF produced 62,727 ounces of gold and 6.7 million pounds of copper, which was in line with expectations, with all-in-sustaining costs of $883 per ounce. The company also repurchased 253,000 shares for a total cost of $1.9 million, besides paying $7.2 million in dividends.

Street expects DPMLF’s revenue for the second quarter (ending June 2024) to reach $141 million. Its revenue for the current year is expected to grow 6.8% from the year-ago value to $555.73 million.

The stock’s trailing-12-month gross profit margin of 52.74% is 86.8% higher than the industry average of 28.23%. Likewise, its net income and levered FCF margins of 37.12% and 19.07% compare to the industry averages of 4.72% and 5.29%, respectively.

With strong operating performance from the Chelopech and Ada Tepe mines in the first quarter of 2024, DPMLF is on track to meet its 2024 guidance. The company expects gold production of 245,000 to 285,000 ounces, copper production of 29 to 34 million pounds, and an all-in-sustaining cost of $790 to $930 per ounce of gold sold.

Further, the positive outcomes from the Čoka Rakita Preliminary Economic Assessment (PEA) have prompted DPMLF to commence a Pre-Feasibility Study (PFS) for the project. This development has led to an increase in the company's 2024 evaluation expense forecast, now estimated between $30 million and $35 million, up from the previous $10 million to $13 million range.

DPMLF’s stock is already up more than 29% over the past nine months and has gained approximately 25% year-to-date.

The U.S. Dollar Is DOWN. Start Investing in These 5 Safe Haven Assets

With the latest hike, Jerome Powell and his team at the Federal Reserve raised the benchmark borrowing cost to 5.25%-5.50%, thereby ratcheting it up from nearly 0% in  16 months.

While a 2.6% rise in inflation, down from a 4.1% rise in Q1 and well below the estimate for an increase of 3.2%, and an annualized increase of 2.4% in the gross domestic product in the second quarter, topping the 2% estimate, had raised hopes that the elusive “soft landing” could be within reach, recent developments have been less than encouraging.

Despite the falling unemployment rate, the number of jobs created in July came in lower than expected, which could be symptomatic of an economy slowly but surely footing the bill of aggressive interest-rate hikes. Moreover, with a more-than-forecasted increase in wages, there are increasing concerns that interest rates could stay higher for longer.

To compound the miseries further, after placing the country on negative watch amid the debt-ceiling standoff at Capitol Hill back in May, Fitch Ratings recently downgraded U.S. long-term rating to AA+ from AAA, citing the erosion of confidence in fiscal management.

As a result, despite the salvo of interest-rate hikes, the dollar has recently weakened in relation to its peers. The dollar index, a measure of the U.S. currency against six peers, fell 0.185%. The euro edged up 0.31% to $1.0978, and the yen strengthened 0.16% at 142.31 per dollar.

Moreover, with every increase in benchmark interest rates, a selloff of long-duration fixed-income instruments, such as the 10-year treasury notes, gets triggered, which causes a slump in their market value and a consequent increase in their yields.

After benchmark 10-year yields jumped by as much as 15 basis points above the key 4% level, Peter Schiff, CEO and chief economist at Euro Pacific Asset Management, warned of a crash in Treasuries. He has also predicted the benchmark 30-year mortgage rates to soon hit 8%, a level last seen in 2000.

An increase in borrowing costs would not just raise the cost of servicing the $32.7 trillion national debt; significant markdowns prices of legacy bonds and an inability by borrowers to service them due to economic slowdown could crush the loan portfolios of struggling banks and make them go the way of the dodo, such as the Silicon Valley Bank and the First Republic Bank.

Hence, it is unsurprising that Moody’s has cut ratings of 10 U.S. banks and put some big names on downgrade watch, and HSBC Asset Management’s warning that a U.S. recession is coming this year, with Europe to follow in 2024 is gaining credibility with each passing day.

With a material risk that an apparently resilient economy could find itself regressing into a full-blown recession just as Jerome Powell’s colleagues at the Federal Reserve have stopped forecasting it, seasoned investors could be wise to seek refuge in anti-fragile assets which could see upside potential in the event of a turmoil.

Since a devaluation in domestic currency brightens the prospects of exports, one of the ways to navigate the terrain is to bet on U.S. companies generating international sales, which could benefit from an uptick in earnings.

Secondly, since the value of gold has usually been negatively correlated to the global reserve currency, the demand for yellow metal from central banks worldwide totaled 1,136 tons in 2022.

In view of the above, here are a few financial instruments that could be worthy of consideration:

QUALCOMM Incorporated (QCOM)

QCOM is engaged in developing and commercializing foundational technologies for the global wireless industry. The company operates through three segments: Qualcomm CDMA Technologies (QCT), Qualcomm Technology Licensing (QTL), and Qualcomm Strategic Initiatives (QSI).

Over the past three years, QCOM’s revenue has grown at a 24.5% CAGR, while its EBITDA has grown at a 34.4% CAGR. During the same time horizon, the company has been able to increase its net income at 46.4% CAGR.

On July 14, QCOM announced its quarterly cash dividend of $0.80 per common share, payable on September 21, 2023, to stockholders of record at the close of business on August 31, 2023.

QCOM pays $3.20 annually as dividends. Its 4-year average dividend yield is 2.32%. The company has been able to increase its dividend payouts for the past 19 years and at a 5.5% CAGR for the past five years.

For the fiscal third quarter that ended June 25, QCOM’s non-GAAP revenues came in at $8.44 billion, with QCT automotive posting an 11th straight quarter of double-digit revenue growth, while its non-GAAP net income amounted to $2.16 billion, or $1.87 per share.

Analysts expect QCOM’s revenue and EPS for the fiscal fourth quarter to exhibit marginal sequential increases to come in at $8.50 billion and $1.90, respectively. It corresponds to the midpoint of the company’s guidance for the quarter. Moreover, QCOM has met or exceeded consensus EPS estimates in three of the trailing four quarters.

Schlumberger N.V. (SLB)

As a global technology company, SLB primarily offers oilfield services to national oil companies, integrated oil companies, and independent operators. The company operates through four segments: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems.

SLB has grown its revenue and EBITDA at 1.8% and 7% CAGRs, respectively.

On July 26, SLB and Eni S.p.A. (E), through its subsidiary Enivibes, announced an alliance to deploy e-vpms® (Eni Vibroacoustic Pipeline Monitoring System) technology. The new proprietary pipeline integrity technology, capable of providing real-time analysis, monitoring, and leak detection for pipelines around the world, can be retrofitted to any pipeline, regardless of age.

The system would be capable of providing real-time analysis, monitoring, and leak detection for pipelines around the world.

On July 6. SLB announced that it had been awarded a five-year contract by Petroleo Brasileiro S.A.- Petrobras (PBR) for enterprise-wide deployment of its Delfi™ digital platform. The award represents one of PBR’s largest investments in cloud-based technologies and sets the foundation for it to achieve its decarbonization and net-zero targets. 

During the fiscal 2023 second quarter that ended June 30, SLB’s revenue increased by 19.6% year-over-year to $8.10 billion. The company’s adjusted EBITDA increased by 28.2% year-over-year to $1.96 billion during the same period. Consequently, its non-GAAP net income increased by 44% year-over-year to $1.03 billion and $0.72 per share.

Analysts expect SLB’s revenue and EPS for the fiscal third quarter to increase by 11.6% and 23.8% year-over-year to $8.35 billion and $0.78, respectively. The company has also impressed by surpassing consensus EPS estimates in each of the trailing four quarters.

SPDR Gold Trust ETF (GLD)

GLD is a world-renowned ETF launched and managed by World Gold Trust Services, LLC. It offers investors exposure to gold, which has of late become an important component of their asset allocation strategy by acting as a hedge against volatility in equity markets, inflation, and dollar depreciation.

With $56.10 billion in AUM, all of GLD’s holdings are in gold bullion, stored in secure vaults. The physically-backed nature of this product insulates this product from the uncertainties introduced through futures-based strategies.

GLD has an expense ratio of 0.40%, lower than the category average of 0.47%. The fund’s net inflow came in at $6.82 billion over the past five years. It has a beta of 0.15.

AFLAC Incorporated (AFL)

AFLAC is involved in the marketing and administration of supplemental health and life insurance. The company operates through two subsidiaries: American Family Life Assurance Company of Columbus (Aflac) and Aflac Life Insurance Japan Ltd. (ALIJ), which belong to the Aflac U.S.  and Aflac Japan segments, respectively.

Over the past three years, AFL has grown its EBITDA and net income at 6.6% and 16.1% CAGRs, respectively.

On July 25, AFL launched its new product, Aflac Group Life Term to 120, to provide worksite life insurance, flexible living benefits, and affordable rates that won't increase across employees' lifespans. With flexible living benefits designed to make it easy to use whenever needed, the product assures customers of financial protection when needed.

During the fiscal 2023 second quarter that ended June 30, AFL’s total revenues came in at $5.17 billion, while its adjusted earnings excluding current period foreign currency impact increased by 3.6% and 10.2% year-over-year to come in at $979 million, or $1.62 per share, respectively.

Analysts expect AFL’s EPS for the fiscal third quarter to increase by 27% year-over-year to come in at $1.46. Moreover, the company has impressed by surpassing consensus EPS estimates in each of the

In addition to its robust financials, the relative immunity of its demand and margins to potential economic downturns make it an attractive investment option for solid risk-adjusted returns.

VanEck Vectors Gold Miners ETF (GDX)

GDX is managed by Van Eck Associates Corporation. It offers exposure to some of the largest gold mining companies in the world. Since their stocks strongly correlate to prevailing gold prices, the ETF provides indirect exposure to gold prices.

GDX has an expense ratio of 0.51%. It pays $0.48 annually as dividends, and its payouts have grown at a 22% CAGR over the past five years. It saw a net inflow of $68.53 million over the past month. The ETF has a beta of 0.77.

GDX has about $11.71 billion in assets under management (AUM). The ETF’s top holding is Newmont Corporation (NEM) which has a 10.04% weighting in the fund. It is followed by Barrick Gold Corporation (GOLD) at 9.04% and Franco-Nevada Corporation (FNV) at 8.31%. The fund has 52 holdings, with 61.81% of its assets concentrated in the top 10 holdings.