Watch out for These Valuation Catalysts in Gold Miners’ 4Q17 Earnings


Feb. 8 2018, Updated 9:00 a.m. ET

AEM’s highest valuation multiple

Of all the miners (GDX) we’ve discussed in this series, Agnico Eagle Mines (AEM) has the highest EV-to-forward-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 11.6x.

AEM is currently trading at a premium of 14% to its past-five-year average multiple. Its current multiple also implies a premium of 64% to its close peers (GDX) (GDXJ).

As can be seen in the graph below, AEM’s EBITDA margin is quite high. The company offers strong production growth, which is supported by a strong project pipeline. AEM’s strong operational consistency and its exploration program are supporting a higher multiple for the stock.

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Newmont Mining (NEM) has the second-highest valuation multiple among these miners at 8.8x. Its multiple suggests a premium of 19% to its historical multiple and of 25% to its peers’ average multiple. Due to the company’s efforts at deleveraging and project execution in 2017, its multiple has seen significant re-rating.

Barrick Gold and Goldcorp

Goldcorp (GG) follows Newmont closely with its forward multiple of 8.7x, representing a discount of 4.0%, compared with its historical average multiple. It also reflects a 23.6% premium to the senior gold peer multiple.

Analysts appear to be optimistic about Goldcorp’s long-term vision, which is expected to drive production and reserves up 20% over the next five years while driving unit costs 20% lower.

Despite having the highest EBITDA margin, Barrick Gold’s (ABX) multiple is lower than those of Agnico Eagle Mines, Newmont Mining, and Goldcorp at 5.9x. The multiple also represents a discount of 10% to its historical multiple and a discount of 15.8% to its peers.

Barrick Gold faced issues with its mines in Argentina and Tanzania, which could impact its production growth. These factors are affecting analysts’ short-term forecasts.

Yamana Gold and Kinross Gold

While Yamana Gold’s (AUY) multiple is lower than the peer average at 5.98x, its recent production and cost improvement outlook after the announcement of Cerro Moro has seen its multiple rise.

Kinross Gold (KGC) is trading at the lowest forward multiple of 4.8x. Although the stock saw a rerating of 16% in 2017, there could still be some upside left in the stock. The speedy execution of its growth projects at Tasiast Phase Two and Round Mountain Phase W could be the next positive catalyst for KGC.


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