Gold price’s reversal this year has created opportunities in gold stocks. The SPDR Gold Shares ETF (GLD) had gained 11% year-to-date as of Friday. About 11.3% of those gains have come in the last one-and-a-half months. Since the end of May, the S&P 500 and the Dow Jones Industrial Average have returned 6.1% and 7.1%, respectively. For more on gold’s outlook, read Gold Breaches $1,400: What’s the Next Stop?
Gold stocks’ leveraged nature
Gold miners, usually a leveraged play on gold prices, tend to amplify gold’s gains and losses. Since the end of May, the VanEck Vectors Gold Miners ETF (GDX) has risen 37%. The more leveraged Direxion Daily Gold Miners Index Bull 3X Shares ETF (NUGT) and Direxion Daily Junior Gold Miners Index Bull 3X Shares ETF (JNUG) have returned a whopping 141% and 158%, respectively.
Gold miners’ earnings season
Gold miners’ Q2 earnings season is scheduled to start Thursday. Several miners, including Newmont Goldcorp (NEM), Agnico Eagle Mines (AEM), and Yamana Gold (AUY), are expected to release their earnings that day.
Analysts’ favorite gold miner
In the senior and intermediate gold miner space, excluding royalty and streaming companies, analysts are most bullish on Agnico Eagle Mines (AEM). Of the analysts covering it, 82% recommend “buy,” and 18% recommend “hold.” They have become more optimistic on the stock in the last few months due to its strong project execution.
Newmont Goldcorp (NEM) follows AEM with “buy” recommendations from 65% of analysts covering it. Its net debt reduction and strong project pipeline are making analysts positive toward the stock. Investors are looking forward to the company’s merger execution with Goldcorp.
Yamana Gold and IAMGOLD
Yamana Gold (AUY) comes next with “buy” recommendations from 54% of analysts covering it. At the end of March, it had “buy” ratings from 69% of analysts. This year, Yamana stock has been downgraded by GMP Securities, National Bank Financial, and Royal Bank of Canada. It has been upgraded by CIBC. On April 15, AUY announced it had agreed to sell its fully owned Chapada mine to Lundin Gold (LUNMF) for $1 billion. While the company plans to double its dividend after the mine sale, investors are not completely happy with the deal. It could hurt the company’s production, and there are not many projects to compensate.
IAMGOLD (IAG) closely follows Yamana with “buy” ratings from 53% of analysts. At the end of February, it had “buy” ratings from 83% of analysts covering it. Its Q1 earnings missed analysts’ expectations. The company has maintained its production and cost guidance but has said it might review and update it in the second quarter. Other reports suggest IAMGOLD might be in the process of selling itself, which has provided some bounce to the stock.
Negative analyst sentiment
Other stocks have attracted negative attention from analysts. None of the analysts covering New Gold (NGD) recommend “buy.” The stock has climbed 88% year-to-date after plunging 77% last year. It was reduced to a penny stock due to delays at its Rainy River mine. While the Rainy River situation has been turning around slowly, persistent concerns are preventing analysts from betting on the stock.
Only 21% of analysts covering Barrick Gold (GOLD) recommend “buy.” They turned negative on the stock following issues in Tanzania and Argentina. However, Barrick has bought the remaining minority interest in Acacia Mining, which should help resolve its issues with the Tanzanian government. Whereas its merger with Randgold Resources has been received positively, many analysts seem to be waiting to assess the post-merger situation.
About 38% of analysts covering Eldorado Gold (EGO) recommend “buy.” The stock has gained the most among peers this year, rising 167%. Investors, however, should note that the stock fell about 60% last year due to mine issues in Greece and Turkey.
These issues seem to be turning a corner. On April 1, Eldorado announced commercial production had started at its Lamaque mine in Québec. Analysts also turned positive following the election of a business-friendly party in Greece that could secure Eldorado permits for restarting its mine there. However, the company’s debt position also needs to improve for investors to turn around.
Of the analysts covering Kinross Gold (KGC), 42% recommend “buy.” Geopolitical tensions are keeping analysts wary on Kinross Gold. Going forward, a positive resolution to its Tasiast Expansion Phase 2 project could boost analysts’ sentiment.