Which Senior Gold Miners Could Re-Rate after Their 4Q16 Results?



Senior gold miners

Senior gold miners are large miners with established positions. They’re usually less risky, with highly liquid stocks. While the performances of these miners differ due to company-specific factors, they usually follow gold prices as a group.

Read Which Gold Miners Offer a Potential Upside after 3Q16 Results? for an in-depth analysis of senior miners.

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Is Goldcorp’s premium justified?

Among senior gold miners, Goldcorp (GG) is trading at the highest multiple of 10.8x. However, investors should note that its premium to other miners has narrowed substantially. At the beginning of the year, the premium was 35%. This figure has now contracted to 25%. 

The bright side to this story is that Goldcorp may have reached the lowest point in its operational performance, which means that it could see better prospects on the horizon. Goldcorp still has one of the best long-term organic growth production profiles, with a good execution track record from its management.

Read Will 2017 Mark a Turnaround in Goldcorp’s Fortunes? for a look at GG’s long-term guidance and what it means for its outlook.

Could Newmont Mining re-rate?

Newmont Mining (NEM) has a multiple of 8.6x with an EBITDA (earnings before interest, tax, depreciation, and amortization) margin of 37%. Higher gold price leverage and falling financial leverage have been the main drivers of NEM’s significant re-rating since the beginning of 2016.

At the start of 2016, Newmont Mining was trading at a multiple of just 5.6x. The stock’s lower unit cost and lower leverage could justify its multiple. Investors should watch NEM’s 4Q16 results for future cost and production growth guidance.

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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 48%, it’s trading at a multiple of 6.9x, 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, potentially leading to its re-rating. The company could provide another target for debt reduction in its 4Q16 results.

Kinross Gold

Kinross Gold (KGC) is trading at the lowest forward multiple of 4.9x. However, its EBITDA margin estimates are the lowest among its peers at 36%, mainly due to its higher unit costs and lower grades. Geopolitical risks and KGC’s unstable production profile are also weighing on investors’ minds.

While ABX enjoyed a good run in 2016 on the back of higher gold prices and its high gold price leverage, it could underperform in a weaker gold price environment. Key factors to watch for in ABX’s 4Q16 will be the Tasiast expansion update, which could lead to higher production growth for the miner going forward.

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


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