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Which Gold Miners Look Attractive after 1Q17 Earnings?

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Part 14
Which Gold Miners Look Attractive after 1Q17 Earnings? PART 14 OF 14

A Look at Key Valuation Catalysts for Gold Miners in 2017

Is Goldcorp’s premium justified?

Among senior gold miners, Goldcorp (GG) is trading at the highest EV-to-forward EBITDA1 of 9.5x, a premium of 31% to its peers. 

However, investors should note that Goldcorp’s premium to other miners has narrowed since its premium of 35% in early 2017. It has consistently traded at a higher multiple than its peers.

A Look at Key Valuation Catalysts for Gold Miners in 2017

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Although Goldcorp disappointed investors in 2016, the bright side to this story is that it may have reached the lowest point in its operational performance. As a result, it could see better prospects on the horizon. 

If Goldcorp follows through on its guidance, there could be a rerating of its stock. The execution of the new management’s goals could go a long way toward a valuation upside. Goldcorp still has one of the best long-term organic growth production profiles among its peers.

Could Newmont Mining see a rerating?

Newmont Mining (NEM) has a multiple of 8.3x with an EBITDA margin of 36%. The company’s stock has taken a beating in 2017 due to its higher guidance for costs. It hasn’t seen any valuation reratings in 2017. 

NEM’s 1Q17 results were, however, better than market expectations, and it improved its long-term production and costs guidance. Any other major production or cost improvement guidance could lead to a rerating to a higher multiple.

Barrick Gold

Barrick Gold’s (ABX) high financial leverage has been a cause of concern for investors. Despite having the highest EBITDA margin among its peers at 47.5%, it’s trading at a multiple of 6.5x—lower than Goldcorp and Newmont Mining.

ABX’s management’s focus on reducing its leverage has acted as a positive catalyst over the last two years. Its unit costs are also among the lowest in the industry, which should work in its favor going forward and potentially lead to a rerating. 

Although Barrick Gold reported a miss in its 1Q17 results, its fundamentals remain strong. Another round of debt reduction could result in a rerating of the stock.

Kinross Gold

Kinross Gold (KGC) is trading at the lowest forward multiple of 4.7x. At 37.0%, its EBITDA margin estimates are among the lowest compared to its peers, mainly due to its higher unit costs and lower grades. Geopolitical risks and KGC’s unstable production profile are also weighing on investors’ minds. 

Kinross Gold’s 1Q17 results were, however, better than market expectations. Its recent results show that it has been able to cut costs, improve its production profile, and reduce some of its risky exposure. Positive results from its Tasiast expansion studies could act as a positive catalyst and lead to a rerating of the stock.

Barrick Gold (ABX) and Newmont Mining (NEM) account for 6.2% and 6.7%, respectively, of the VanEck Vectors Gold Miners ETF (GDX).

  1. enterprise value to earnings before interest, tax, depreciation, and amortization
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