Will These Intermediate Gold Equities See a Valuation Upside?


Nov. 20 2020, Updated 3:16 p.m. ET

AEM has the highest multiple

Among intermediate gold miners (GDX), Agnico Eagle Mines (AEM) has the highest forward EV-to-EBITDA (enterprise value-to-EBITDA) multiple of 12.0x, which implies a whopping premium of 80.0% to its close peers.

AEM enjoys this premium due to its strong production growth, which is supported by its impressive project pipeline. AEM’s operational consistency and exploration program support its higher multiple. Read Why Analysts Have Changed Their Tune on Agnico Eagle Mines for more on analysts’ sentiments for the stock.

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Significant multiple contractions

Eldorado Gold’s (EGO) and New Gold’s (NGD) forward multiples used to trade at significant premiums to their peers. Currently, however, their multiples are trading at 5.1x and 4.0x, respectively, implying discounts of 45.0% and 28.0% to their historical multiples. While Eldorado Gold faces ongoing issues at its mines in Greece and Turkey, New Gold stock has been pressured by delays, cost escalations, and execution issues at its Rainy River project. Operational and mechanical challenges at the site continue to dent its earnings potential.

EGO could see a valuation rerating depending on the execution at its new Canadian mine, which is on track for commercial production in the first quarter. New Gold is scheduled to report its 2018 results on February 14. Any further positive update regarding Rainy River or guidance for 2019 could act as a positive catalyst for the stock.

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Discount restored for IAG

IAG stock is currently trading at a forward multiple of 3.5x, a discount of 44% to its peers (GDXJ). While investors got excited about the company’s significant reserve expansion announcements and strong project executions in 2017, the company disappointed on these fronts in 2018.

During the release of its year-end production results and 2019 guidance on January 16, the company stated that it was expecting reduced production and higher all-in sustaining costs in 2019. This development is expected to dent analysts’ sentiments, which should also lead to lower earnings estimates. IAG needs to become a lower-cost producer of the metal sooner rather than later to allay investors’ concerns.

Read Why IAMGOLD Has Climbed the Ranks among Analysts for a detailed discussion on IAG’s analyst sentiment.

Yamana Gold

Yamana Gold (AUY) is trading at a multiple of 5.6x, which implies a discount of 10% to its intermediate peers. The company has, however, narrowed its discount to its peers to a large extent. With the startup of the Cerro Moro mine, Yamana Gold’s production and costs are expected to improve significantly. The company’s free cash flow generation should also increase and sidestep its balance sheet concerns.

Read Why Is Yamana Gold on So Many Analysts’ Wish Lists? for analysts’ outlook on Yamana.


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