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Assessing Gold Miners’ Valuations after Their 2Q17 Results

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Is Goldcorp’s premium justified?

Goldcorp (GG) has the highest EV-to-forward-EBITDA[1. earnings before interest, tax, depreciation, and amortization] multiple among the senior gold miners (GDX) at 9.5x, a premium of 33% to its peers. This premium, however, is lower than the 40% premium over the last five years. 

While Goldcorp’s attractive asset profile in safe jurisdictions, good execution, and strong project pipeline warranted a premium, the expectations reset by the company in 2016 led to the erosion of the premium.

Goldcorp is now focusing on long-term growth regarding production, reserves growth, and cost improvement. A follow-through on its guidance could lead to a rerating of the stock.

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Could Newmont Mining see a rerating?

Newmont Mining’s (NEM) premium, on the other hand, has increased over time. It is currently trading at a forward multiple of 8.3x, which is a 16% premium to its peers. This premium is higher than the last five years’ average premium of 5%. 

Analysts have turned optimistic toward its stock due to the company’s impressive turnaround regarding debt and cost management. Its project pipeline is also one of the best in the sector. Early completion of its projects can lead to a further rerating to a higher multiple.

Barrick Gold

Although Barrick Gold’s (ABX) high financial leverage was still a concern for investors, the recent issues at its Veladero and Tanzanian mines have also hurt the stock. A downside to the production could still be quite real. 

This trend could be the reason that even after having the highest EBITDA margin among its peers, it is trading at a lower multiple than Newmont and Goldcorp. ABX’s less-than-robust production growth pipeline could be another reason for the lower multiple.

Kinross Gold

Kinross Gold (KGC) is trading at the lowest forward multiple of 4.9x. 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. However, it has successfully shown that it can cut costs, improve its production growth profile, and reduce its risk exposure. 

In addition to continuous progress on these initiatives, positive results from its Tasiast expansion studies could act as a positive catalyst and lead to a rerating of the stock. The decision on the start of its growth project due in September 2017 could also act as a key catalyst for the stock going forward.

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