- By Alberto Abaterusso
Outlook for gold and silver prices
Over the last five days, gold and silver futures lost 2.8% and 4.4%, respectively, following encouraging results from the development of Pfizer Inc (PFE) and Moderna Inc (MRNA)'s Covid-19 vaccines, which show high effectiveness in preventing the disease in their late-stage trials.
Year to date, the precious metal remains abundantly in green territory, as gold futures are up 18.2% to $1,833.80 per troy ounce and silver futures have gained 30.3% to $23.56 per troy ounce at close on Monday.
For the months ahead, gold is projected to hit higher prices as analysts now foresee higher uncertainty on the horizon. Last week, some heads of top monetary authorities worldwide have lowered their expectations of economic recovery as the real economic damage from the pandemic has yet to hit.
During this period of elevated volatility, high net worth individuals usually show their preference for investments in gold and silver, as these assets offer a good protection from the negative effects of unstable financial markets.
With the precious metal sets to deliver higher prices on these tailwinds, one way that investors can get in on the profits is by acquiring stocks of those publicly traded mining companies whose shares prices usually climb faster than the precious metal that they produce and sell during bull markets for the yellow metal.
In my opinion, the following three stocks represent interesting proposals, as they have not only risen more than gold and silver recently but also outperformed the mining industry so far this year. Year to date, Polyus PJSC (OPYGY)'s shares are up 72% to $97.60 per unit, Eldorado Gold Corp (NYSE:EGO)'s stock price gained 52% to $12.21 per share and Hecla Mining Co (NYSE:HL) shares climbed 44% to $4.88 each. As benchmarks for the mining industry, the VanEck Vectors Gold Miners exchange-traded fund (GDX) increased by about 17.4% and the Global X Silver Miners ETF (SIL) rose by about 21%.
Polyus is a Russian operator with activities for the production of gold in Siberia and the Yakutia region of Russia.
In the third quarter of 2020, Polyus posted proforma earnings of approximately $5.74 per share on total revenue of $1.454 billion, which increased by 36% year over year. The Russian miner produced 771,000 ounces of gold, enduring an all-in sustain cost of $571 per ounce. From the sale of the metal, the company realized an average price of $1,907 per ounce.
For full 2020, Polyus targets to mine 2.8 million ounces of gold at an AISC per ounce of approximately $600 and anticipates capital expenditures of $700 million to $750 million.
The stock has a market cap of $25.77 billion, a 52-week range of $43.41 to $128, a price-book ratio of 19.48 (versus the industry median of 2.36) and an enterprise value-Ebitda ratio of 13.56 (versus the industry median of 11.59).
GuruFocus assigned a financial strength rating of 5 out of 10 to the company, which is driven by a debt-to-Ebitda ratio of 1.14 versus the industry median of 2.
With regard to the profitability of the company's operations, GuruFocus has assigned a rating of 8 out of 10, driven by an Ebitda-to-revenue margin ratio of 72% compared to the industry median of 22%.
Wall Street recommends a buy rating with an average target price of $124.99 per share of Polyus.
Eldorado Gold Corp
Eldorado Gold Corp is a Canadian mining company with mineral deposits located in Turkey, Greece and Ontario (a Canadian province).
The miner reported third quarter 2020 adjusted earnings per share of 33 cents on revenue of $287.59 million (up 67% year over year), missing expectations on the bottom line by 1 cent but beating those on the top line by $7.93 million. Eldorado produced 136,922 ounces of gold during the quarter, bearing an AISC of $918 per ounce and realizing an average price of $1,919 per ounce of metal sold.
Looking ahead to full-year 2020, the Canadian operator aims to mine a total gold output of 520,000 to 550,000 ounces, enduring an AISC of $850 to $950 per ounce. It also expects to use funds of $166 million to $235 million to cover capital expenditures for explorations, development and maintenance of mineral activities, including disbursements for minor projects.
The stock has a market cap of $2.14 billion, a 52-week range of $4.60 to $14.49, a price-book ratio of 0.59 (versus the industry median of 2.36) and an enterprise value-Ebitda ratio of 4.06 (versus the industry median of 11.59).
GuruFocus assigned a financial strength rating of 6 out of 10 and a profitability rating of 5 out of 10 to the company. The first rating is led by a debt-to-Ebitda ratio of 1.03 (versus the industry median of 2), while the second rating is driven by an Ebitda-to-revenue margin ratio of 57% (versus the industry median of 22%).
Wall Street recommends an overweight rating with an average target price of $15.47 per share of Eldorado Gold.
Hecla Mining is a Coeur d'Alene, Idaho-based mining company with mineral properties in northern Idaho, Nevada, southeast Alaska, northwestern Quebec and the Mexican State of Durango for the extraction of gold and silver.
In the third quarter of 2020, the company reported adjusted net earnings per share of 5.4 cents, which beat consensus by 1.4 cents, on revenue of $199.7 million (up 23.7% year over year), which exceeded projections by $4.8 million. Hecla produced 3.5 million ounces of silver at an AISC of $11.53 (net of by-product credits) and 41,174 ounces of gold at an AISC of $1,855 (net of by-product credits) in the quarter. The miner sold the precious metal for an average price per ounce of $25.32 for silver and of $1,911 for gold.
Looking forward, Hecla Mining informed the market about its expectations on production, costs and capital expenditure for the whole year of 2020. It targeted 12.8 million to 13.4 million ounces of silver to produce at an AISC per ounce of $11.75 to $12.25 and 200,000 to 207,000 ounces of gold to produce at an AISC per ounce of $1,300 to $1,350. Thus, the output of equivalent silver should surpass 43 million ounces, while that of gold should range between 468,500 and 482,500 ounces. Financial resources to allocate to capital expenditures, including expenses for exploration activities, are anticipated at around $118.5 million.
The stock has a market cap of $2.59 billion, a 52-week range of $1.40 to $6.79, a price-book ratio of 1.54 (versus the industry median of 2.36) and an enterprise value-Ebitda ratio of 14.12 (versus the industry median of 11.59).
GuruFocus assigned a financial strength rating of 5 out of 10 to the company, driven by a debt-to-Ebitda ratio of 2.45 (versus the industry median of 2), and a profitability rating of 4 out of 10, driven by an Ebitda-to-revenue margin ratio of 29.3% (versus the industry median of 22%).
Wall Street recommends a hold rating with an average target price of $6.68 per share of Hecla Mining.
Disclosure: I have no position in any security mentioned in this article.
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This article first appeared on GuruFocus.