Why Equinox Gold Could Rebound Strongly
Gold has fallen sharply since Wednesday, by more than $15 an ounce to $1,810.30 at the time of writing, after the Federal Reserve decided to keep interest rates close to zero at least until its next meeting. The drop is temporary and the result of a surprise as most market participants expected the first of a series of rate hikes planned by the U.S. central bank to combat high inflation.
Instead, interest rates will remain low as the economy needs additional support due to the uncertain outlook stemming from the Omicron variant and the possible outbreak of other strains of the Covid-19 virus. Neither Tedros Adhanom Ghebreyesus, the director-general of the World Health Organization, nor Antony Fauci ,the director-general of the National Institute of Allergy and Infectious Diseases and chief medical adviser to President Joe Biden, can rule these possibilities out as of today.
The price per ounce should go up due to the increased demand for gold for several reasons.
First, because the precious metal continues to be favored over bonds and other fixed-income securities when interest rates are low.
Second, as inflation will remain high for the time being, this factor, which leads to heightened uncertainty, will underline gold's role as a hedging tool at a time when the perception of the investment risk is certainly augmented.
Therefore, with gold prices expected to be higher than current levels, investors should consider U.S.-listed miners as these stocks tend to outperform the commodity itself.
My pick is Equinox Gold Corp. (EQX). The Canadian miner with 100% of its operations in the Americas (friendly mining districts) is on track to deliver significant increases in gold production for 2021 and beyond.
Following significant investments in recent months, the Los Filos Mine in Mexico and other mineral reserves in Brazil are now poised to mine higher grades or begin commercial production of gold from certain satellite mining projects.
As such, more than 33% of total production forecasted for full-year 2021 (approximately 550,000 to 615,000 ounces) may have been delivered through the final quarter of 2021, while future production is expected to be higher going forward, up to 1 million ounces annually within a few years.
In addition, in Brazil, the company will soon realize another producing gold mine, while the development of an underground metal project has the potential to significantly improve operations in terms of longer mine life and more ounces mined.
If these growth targets coincide with the expected gold bull market, the repercussions for the share price could be extremely positive.
From current levels, Wall Street targets 60.5% upside to hit within 52 weeks as it has established an average target price of $9.60 per share. The medium recommendation rating that accompanies the price target is a buy rating.
The closing share price of $5.98 on Wednesday doesnt look expensive when compared to the 50-Day Moving Average value of $6.91 and the 200-Day Moving Average value of $7.41.
The 14-day relative strength index is 33, indicating the stock is not far from oversold levels.
The company doesn't have great financial conditions, but it is not in terrible shape either. As of Sept. 30, available cash was $456 million, which was lower than the total debt of $592 million, but the interest coverage ratio of 3.12 indicates the company can pay interest charges maturing on all outstanding loans.
The current ratio is 2.67, allowing ongoing operations to generate sufficient liquidity to meet short-term financial commitments. However, investors should pay attention to the Altman Z-Score of 1.74, which warns there is potential for the company to go bankrupt.
The share price has dropped 40% over the past year as it went out of favor along with other gold mining stocks did. But, in addition to the promising gold price outlook, the stock has its own catalysts, which could make the share price rebound strongly.
This article first appeared on GuruFocus.
