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Which Gold Miners Have Valuation Upside after 3Q17 Results?

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Is Goldcorp’s premium justified?

Among the senior miner peers (GDX), Goldcorp (GG) has the highest EV-to-forward-EBITDA (earnings before interest, tax, depreciation, and amortization) multiple of 8.5x—a premium of 26% to its peers. GG’s historical relative premium has, however, fallen. Its last five-year average multiple implies a premium of 31% to peers. Its forward multiple has also fallen ~16% since the start of the year. The company’s slower production growth has added to its woes in 2017. Overall, its higher multiple is due to its attractive asset profile in safe jurisdictions, good execution, and strong project pipeline. A follow-through on its long-term vision of improving reserves, production and unit costs of 20% each by 2021 could go a long way in further rerating the company’s multiple.

Could Newmont Mining see a rerating?

Newmont Mining’s (NEM) current forward multiple of 7.9x is at a premium of 7.3% to its last-five-year average multiple. It’s also trading at a premium of 17.4% to its peers’ multiple. The company’s efforts toward debt reduction, cost reduction, and the execution of its project pipeline have caused analysts to increase earnings estimates, favoring the multiple.

Barrick Gold

Barrick Gold’s (ABX) higher financial leverage was still a concern for investors, and the recent issues at its Tanzanian mines have added to its woes. It’s trading at a forward multiple of 5.8x, which reflects a discount of 14.2% to its peers and a 12.6% discount to its average trailing five-year multiple. Its forward multiple has fallen 9% since the start of the year as analysts have pared back their estimates for the company. 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 4.8x, depicting a discount of 29% to its peers. Traditionally, the company has traded at a discount to its peers, though the discount has fallen. While the last-five-year average discount was 35%, the current discount is 29%. KGC’s higher-than-average costs have led the stock to trade at a discount. 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, earlier-than-expected progress in its growth projects could act as a positive catalyst and lead to a rerating of KGC.

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