This is turning out to be a great year for gold equities, as the uncertain macroeconomic environment has given rise to an increase in prices of the yellow metal. As a result, gold equities have been on the rise as investors are confident of an improved performance from gold equities this year.
However, there are a few gold stocks that have done extremely well in the early months of 2019. They are Alamos Gold [stock_market_widget type="inline" template="generic" color="default" assets="AGI.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"], Atlantic Gold [stock_market_widget type="inline" template="generic" color="default" assets="AGB.V" markup="(TSXV: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"], and Franco-Nevada [stock_market_widget type="inline" template="generic" color="default" assets="FNV.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"]. Let’s take a closer look at each stock and see why they could prove to be solid investments going forward.
Alamos Gold
An increase in production and an expected decline in the cost profile have turned out to be catalysts for Alamos Gold in recent months. The company’s gold output in 2018 shot up 18% to 505,000 ounces, which was a record. But the company’s bottom-line performance was tempered by non-cash inventory impairment at the El Chanate mine, as a result of which its adjusted earnings per share dropped from $0.13 in 2017 to $0.05 last year.
Alamos witnessed an 18% increase in the cost of sales because of this charge. The company’s cash costs stood at $802 per ounce, while all-in sustaining costs came in at $989 an ounce. But investors aren’t focusing much on what has already happened as Alamos’ outlook looks quite solid.
The company will start operating the Kirazli mine in Turkey from the end of 2020, which will boost Alamos’ production significantly and keep costs under control. More specifically, the first full year of production from Kirazli will be more than 100,000 ounces. But what’s even more impressive is that this production will be achieved at an all-in sustaining cost of only $400 per ounce, or even lower.
As a result, Alamos’ production will start ticking up from 2021 after a flat performance this year. The company’s annual gold production could exceed 600,000 ounces from next year, while the lower cost profile of Kirazli will boost its earnings profile.
This should also allow Alamos to boost the dividend. The company recently doubled its payout and investors can expect more increases going forward because of higher earnings. So, investors have more than one reason to go long Alamos Gold as it can deliver more than just stock upside.
Atlantic Gold
For Atlantic Gold, 2018 was a significant year as the company achieved its first year of commercial production and exceeded its own targets. With production of 90,531 ounces of gold delivered at cash costs of C$558 per ounce and all-in sustaining costs of C$731 an ounce, the company got off to a good start.
Atlantic won’t be letting its foot off the gas this year, as it forecasts 92,000 to 98,000 ounces of gold production for the year. The cash costs won’t rise by much as they are expected to fall in the C$560-C$610 per ounce range, with all-in sustaining costs anticipated in the C$695-C$755 an ounce range.
So the company is looking to follow a disciplined approach this year that will allow it to increase production and keep costs under control at the same time. Another example of Atlantic’s discipline can be gleaned from its initiative to reduce debt.
The company channelled the money from its first year of production toward improving its balance sheet. Atlantic’s net debt was down 39% in 2018 to C$63.7 million thanks to a jump in cash flow. It won’t be surprising to see the company reduce its debt further this year as analysts are anticipating a nice increase in the top and bottom lines once again.
In all, Atlantic Gold is on track to deliver yet another year of improved production that will allow it to further reduce debt and boost investor confidence.
Franco-Nevada
Franco-Nevada is different from the other two gold miners discussed in this article as it is a streaming company that doesn’t own any mines. Instead, Franco-Nevada enters into streaming agreements with miners of base metals that produce gold and silver as by-products.
The good part is that Franco-Nevada’s production profile is expected to get a shot in the arm this year and improve going forward on the back of new streams coming into play. The company anticipates production of 465,000-500,000 gold equivalent ounces in 2019. The mid-point of that guidance is well above the company’s 2018 gold sales of 447,902 gold equivalent ounces.
More importantly, Franco-Nevada is promising further production growth in the future as the Cobre Panama mine, which is its largest investment, has started milling ore. Franco-Nevada has committed to provide a maximum of $1 billion to Cobre Panama’s operator, First Quantum Minerals.
In exchange for the investment, Franco-Nevada will be eligible to get gold at a fixed payment of $400 per ounce and silver at a fixed price of $6 per ounce, with an annual inflation factor of 1.5%. Thanks to this streaming agreement and other developments that the company has in place, the company’s earnings are expected to pick up the pace going forward.
According to Yahoo Finance analysts, Franco-Nevada is expected to deliver earnings of $1.31 per share this year as compared to $1.17 last year. In 2020, the company is expected to deliver earnings per share of $1.49 per share.
As such, it won’t be surprising to see Franco-Nevada ride the wave of higher gold prices thanks to its low streaming costs, which could eventually lead to more upside in the long run.
Conclusion
With consolidation going on in the gold mining industry on account of weak discoveries, these three companies could prove to be solid long-term bets as they are busy finding ways to increase their output. The lack of gold supply will eventually lead to higher pricing, which will prove to be a tailwind for the likes of Alamos, Atlantic, and Franco-Nevada.
So, investors looking for opportunities in precious metals should definitely take a closer look at all three companies because they are capable of sustaining their impressive momentum.
