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Summary
- Gold saw a solid climb during the early months of the pandemic with the S&P/TSX Global Gold Index gaining 42.59 per cent year-to-date.
- Kinross Gold stocks have surged nearly 100 per cent this year while Barrick Gold stocks gained over 54 per cent YTD.
- Despite the expensive valuation, gold stocks are being preferred by Canadian investors due to their potential high earnings and safe asset tag.
Traditionally, gold is considered a haven for investors. As global markets crashed and economies contracted under lockdown, gold stocks shot up significantly. The yellow metal has been rallying strong so far, clearly outperforming pegged market expectations. Spot bullion breached US$2000-mark for the first time in August 2020 amid economic uncertainties caused by the pandemic. Multiple projections estimate gold company stocks such as Kinross Gold Corporation (TSX:K) and Barrick Gold Corporation (TSX:ABX) will continue to rally and report higher earnings in the upcoming quarters this year.
Despite the expensive valuation, gold stocks are being preferred by Canadian investors due to potential high earnings. Some stocks also offer dividends. The S&P/TSX Global Gold Index (CAD) currently yields 42.59 per cent year-to-date returns. Canada’s central bank has announced prolonged periods of near-zero interest rates to boost the markets. Under these circumstances, investors continue to consider precious metals such as gold and silver for long-term safe investments.
Kinross Gold Corporation (TSX:K)
Current Stock Price: C$12.29
Canada-based Kinross Gold is one of the largest gold miners, producing nearly 5.71 million gold equivalent ounces, as reported in the company’s Q2 2020 financial report. The miner is focused on greenfield and brownfield exploration in the Americas, Russia, and West Africa. The company has followed the acquisition route to fuel its expansion goals into new regions and drive production. It will soon acquire 70 per cent stake in Peak Gold project in Alaska.
Kinross’ three-largest producing low-cost mines Paracatu, Kupol and Tasiast delivered 63 per cent of the total production with an average cost of sales of C$596/oz. The company will increase production by 20 per cent to 2.9 million gold equivalent ounces going forward till 2023, it said in a statement.
KINROSS STOCK PERFORMANCE
The company has a current market capitalization of US$15.46 billion. This gold stock has gained nearly 100 per cent YTD, from C$6.16 towards the beginning of the year to C$12.29 currently. The company offers C$0.95 earnings per share (EPS) with a profit-to-equity (P/E) ratio of 12.50.
The company’s shares are among the most active stocks on the TSX and are trading at a 10-day average volume of 5.43 million shares.
As per TMX data, the profit-to-book (P/B) ratio of the company is 2.104 and profit-to-cash flow (P/CF) ratio is 8.40. The company reports positive returns on equity (RoE) at 17.75 per cent and return on assets (RoA) at 9.74 per cent.
Kinross resumed quarterly dividend payout of US$0.03 after halting it for nearly seven years. As of October 2020, the stock has a dividend yield of 1.28 per cent.
KINROSS FINANCIAL HIGHLIGHTS
The company’s net earnings for the second quarter ended June 30, 2020 more than doubled to US$195.7 million or US$0.16 per share, as compared to US$71.5 million in Q2 2019.
Operating cash flow increased by 30 per cent to US$432.8 million in Q2 2020, as compared to US$333 million in Q2 2019. The company also repaid US$250 million of revolving credit facility.
Kinross reported cash and cash equivalents of $1,527.1 million and total liquidity of US$2.3 billion as of June 30, 2020.
Total metal sales in Q2 2020 is US$1007.2 million, as compared to US$837.8 million in Q2 2019. The capital expenditure for Q2 2020 is US$214.3 million as compared to US$275.8 million for the same period last year. This was primarily affected due to a decrease in spending because of the pandemic.
The company will announce Q3 financial results on November 4, 2020.
Barrick Gold Corporation (TSX:ABX)
Current Stock Price: C$37.21
Toronto-based Barrick Gold is one of largest gold producers in the world. The company operates mines in Africa, North and South America, and Australia. Barrick recently entered a definitive purchase agreement with Bullfrog Gold Corp (BFGC). Under this deal, Barrick will sell all its mining claims, permits, historical resources, and water rights in the Bullfrog mine area to BFGC. This transaction is expected to close in Q4 2020.
The company’s Pueblo Viejo production site was also affected by planned maintenance shutdown, but its expansion continued despite Covid-19 challenges. Other projects such as Goldrush development and Turquoise Ridge shaft continue to remain on track. The company will release its third quarter financial results on November 5, 2020.
ABX STOCK PERFORMANCE
Barrick’s stocks are up 54+ per cent year-to-date. The stocks have gained about 2.6 per cent in the last three months.
In August 2020, American investor Warren Buffett’s Berkshire Hathaway announced that it has acquired a stake in the company.
Barrick Gold has a current market capitalization of US$66.16 billion and earnings-per-share (EPS) of US$3.30. As per data on TMX, the company’s P/E ratio is 11.20, P/B ratio is 2.29 and P/CF ratio is 13.10. The stock reports positive RoE and RoA at 23.11 per cent and 11.22 per cent, respectively.
Barrick Gold declared quarterly dividend payout for Q2 2020 of US$0.08 per share, 14 per cent increase from the previous quarter. The dividend payout has more than doubled after Barrick million-dollar merger with Randgold was announced in September 2018.
ABX FINANCIAL HIGHLIGHTS
Barrick’s net earnings during second quarter ended June 30, 2020 increased to US$357 million as compared to US$194 million in Q2 2019. The adjusted net earnings increased as well from US$154 million in Q2 2019 to US$ 415 million in Q2 2020. Net cash from operations grew to US$1031 from US$434 million in Q2 2019.
The operating cash flow for Q2 2020 is more than US$1 billion and a free cash flow of US$522 million.
The net debt of the company reduced by almost 25 per cent to US$1.4 billion as of June 30, 2020, with no significant maturities until 2033.
The total liquidity of the company stood at US$6.7 billion including a cash balance of US$3.7 billion as of June 30, 2020.
