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Analyzing Gold Equities’ Valuation Upside and Downside Catalysts

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Agnico has the highest valuation multiple

Agnico Eagle Mines (AEM) has the highest forward EV-to-EBITDA (enterprise value-to-EBITDA) multiple among the senior and intermediate mining companies under review (GDX). It’s trading at a multiple of 11.8x, implying a premium of 51% to its close peers and 14.6% to its trailing-five-year multiple.

For the company, a long harvesting period will start in 2019, as many of its projects are coming online after a long capex phase. This development should drive significant cash flows for it going forward.

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Newmont Goldcorp (NEM) has the second-highest multiple of 8.1x, implying a premium of 3.2% to its peers. Newmont has a strong project pipeline with very low execution risk at a time when not many miners in the sector are offering growth. Moreover, its synergies after the merger with Goldcorp could give a boost to its multiple. Its Nevada joint venture operations with Barrick Gold (GOLD) also offer a potential upside to its stock.

Barrick Gold

Barrick Gold closely follows NEM with a multiple of 7.8x, which implies a premium of 19% to its own trailing-five-year multiple. Its multiple has received a significant boost since it announced its merger with Randgold Resources on September 24. The multiple has risen 40% since then. While the market has factored in most of the immediate synergy benefits and growth from the merger, the upside from here will depend on the execution after the merger.

Kinross’s valuation catalysts

Kinross Gold (KGC) has the lowest forward multiple of 5.1x, which is almost on par with its five-year historical average multiple. The company’s multiple implies a discount of 35.0% to the peer average. After Kinross Gold addressed its production concerns through acquisitions in attractive jurisdictions, its valuation discount started to decrease. Geopolitical concerns started weighing on the stock and its multiple in 2018 and 2019. If the recent Tasiast Phase Two expansion issue isn’t resolved as soon as possible, the company could see more downside.

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