Trading at the highest multiple
Among the senior mining companies under review in this series (GDX), Agnico Eagle Mines (AEM) is trading at the highest EV-to-forward EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple, of 11.5x. AEM is currently trading at a premium of 13% to its past-five-year average multiple. Its current multiple also implies a premium of 60% to its close peers (GDX)(GDXJ).
As you can see 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.
Newmont Mining (NEM) has the second-highest valuation multiple among these miners, at 8.6x. Its multiple also implies a premium of 15% to its historical multiple and 22% 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 with a forward multiple of 7.9x, representing a discount of 12.4% compared with its historical average multiple. It also reflects a 12% premium to the senior gold peer multiple.
The company’s slower production growth added to its woes in 2017. Its follow-through on its long-term vision of improving reserves, production, and unit costs by 20% each by 2021 could go a long way in further re-rating its multiple.
Despite having the highest EBITDA margin, Barrick Gold’s (ABX) multiple is lower than Agnico Eagle Mines’, Newmont Mining’s, and Goldcorp’s at 5.7x. The multiple also represents a discount of 13% to its historical multiple and a discount of 19% to its peers.
Analysts have pared back their estimates for the company. ABX’s less-than-robust production growth pipeline could be another reason for its lower multiple.
Yamana Gold and Kinross Gold
While Yamana Gold’s (AUY) multiple is lower than the peer average at 5.6x, its recent production and cost improvement outlook after the announcement of Cerro Moro has seen its multiple rise. Any upside on the production or costs could lead to a further re-rating of its multiple.
Kinross Gold (KGC) is trading at the lowest forward multiple of 4.5x, reflecting a discount of 36% to peers. Traditionally, the company has traded at a discount to peers, though that discount has fallen.
KGC’s higher-than-average costs have led to its stock trading at a discount. However, it has successfully shown that it can cut costs, improve its production growth profile, and reduce its risk exposure.
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