Zacks Industry Outlook Highlights Agnico Eagle Mines, Eldorado Gold, Equinox Gold and Kinross Gold
For Immediate Release
Chicago, IL – February 7, 2024 – Today, Zacks Equity Research discusses Agnico Eagle Mines AEM, Eldorado Gold EGO, Equinox Gold EQX and Kinross Gold KGC.
Industry: Gold Mining
Link: https://www.zacks.com/commentary/2221937/4-gold-stocks-to-watch-in-a-lackluster-industry
Gold prices ended 2023 on a solid note. However, the commodity is currently facing headwinds from a strengthening U.S. dollar. The recent slew of U.S. economic data and remarks from the Federal Reserve officials have quelled expectations of interest rate cuts. The recent dip in gold prices, combined with inflated production costs, cloud the near-term outlook for the Zacks Mining - Gold industry.
Amid this uncertainty, Agnico Eagle Mines, Eldorado Gold, Equinox Gold and Kinross Gold are well-poised for growth, backed by their strong balance sheets, efforts to lower costs and growth initiatives.
About the Industry
The Zacks Mining - Gold industry mainly comprises companies engaged in extracting gold from mines. The mines may either be underground or open pits. Mining is a long and complex process, and requires significant financial resources. It involves exploration to evaluate a deposit's size; assessing ways to extract and process ore efficiently, safely and responsibly; and developing the mine before the actual mining process.
It normally takes 10-20 years for a gold mine to produce material that can finally be refined. Players in the industry nowadays use a range of sophisticated techniques to extract gold and convert it into dore bars, an alloy of gold and silver, alongside other impurities. These are then sent for purification, after which gold is purchased as bars or coins, or used in jewelry or other purposes.
Major Trends Shaping the Future of the Mining - Gold Industry
Gold Prices Losing Steam: Gold ended 2023 at $2,078.40 per ounce, delivering an annual return of 15%, outpacing commodities, bonds and the majority of stock markets. Despite being pitted against record-high interest rates, gold thrived on safe-haven demand from the banking crisis earlier in the year and the geopolitical instability.
However, gold seems to have lost its footing this year and is currently at $2,026.62 an ounce. It is being weighed down by higher dollar and bond yields as stronger U.S. economic data and hawkish signals from the Federal Reserve dampened expectations of interest rate cuts. Over the past month, gold has experienced a 1.8% decrease in value.
High Costs, Labor Shortage Are Worrisome: The industry has been facing a shortage of skilled workforce, causing a spike in wages. Industry players are persistently grappling with escalating production costs, including electricity, water, and material and supply-chain issues. Since the industry cannot control gold prices, it focuses on improving the sales volume and the operating cash flow, and lowering unit net cash costs.
The industry participants are opting for alternative energy sources, such as solar or wind farms, to minimize fuel-price volatility and secure supply. Miners are committed to cost-reduction strategies and digital innovation to drive operating efficiencies.
Impending Demand and Supply Imbalance to Buoy Prices: Depleting resources, declining supply in old mines and the lack of new mines are inherent threats to the industry. Due to the scarcity of discoveries and exhaustive existing resources, miners prefer building up reserves through acquisitions rather than digging new ones that are risky and capital-intensive.
On the demand side, the use of gold in energy, healthcare and technology is rising. India and China account for around 50% of consumer gold demand. Economic uncertainty is driving demand in China, whereas economic strength in India is yielding wealth-driven buying. Also, demand for physical gold is seasonally higher in the later part of the year, aided by the festival and wedding season in India.
Holiday-related spending is expected to boost jewelry demand in China. The yellow metal has long been considered a safe-haven investment in financial or political uncertainty. Gold demand continues to be on the rise from central banks. Therefore, there will be an eventual demand-supply imbalance, which is likely to drive gold prices.
Zacks Industry Rank Indicates Dull Prospects
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. The Zacks Mining - Gold Industry, which is a 39-stock group within the broader Zacks Basic Materials sector, currently carries a Zacks Industry Rank #189, which places it at the bottom 29% of 251 Zacks industries.
Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Versus S&P 500 & Sector
The Mining-Gold Industry has underperformed the S&P 500 Index, as well as the Basic Material sector, in a year. The stocks in the industry have collectively declined 8.1% compared with the broader sector’s fall of 8.1%. The S&P 500 has risen 19.2% in the same timeframe.
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA, a commonly used multiple for valuing gold-mining companies, we see that the industry is currently trading at 6.23X compared with the S&P 500’s 11.28X and the Basic Material sector’s forward 12-month EV/EBITDA of 6.58X.
Over the last five years, the industry traded as high as 9.26X and as low as 4.63X, the median being 6.29X.
4 Mining-Gold Stocks to Keep an Eye on
Eldorado Gold: The company recently announced that it produced 143,166 ounces of gold in the fourth quarter of 2023, up 18% sequentially, driven by improved performances at Kisladag, Lamaque Complex and Efemcukuru. Gold production for 2023 was 485,140 ounces, within the company’s guidance of 475,000-495,000 ounces. An enhanced material handling circuit drove the improved performance at Kisladag.
The Lamaque Complex delivered record gold production, both in the fourth quarter and the year, driven by increased grade and mill throughput. At Efemcukuru, record throughput rates were reported in the fourth quarter, averaging 1,500 tpd. This, along with higher gold grades helped the mine in delivering the full-year gold production as per plan. The mine’s rock storage facility has been completed, and will enable more efficient waste rock and dry stack tailing placement. Project costs and schedule are on track for its development project, Skouries, with commercial production expected to commence at the end of 2025.
Eldorado Gold is based in Vancouver, Canada. The Zacks Consensus Estimate for the company’s fiscal 2024 earnings has moved up 45% over the past 90 days. The estimate indicates year-over-year growth of 22.3%. The company has an estimated long-term earnings growth of 51.6%. EGO has a trailing four-quarter earnings surprise of 496%, on average, and currently flaunts a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Equinox Gold: The company recently reported that it produced 155,000 ounces of gold in the fourth quarter of 2023, delivering the best quarter in the year. This brought the total production for 2023 to 564,500 ounces, thereby achieving its guidance for the year. EQX’s Greenstone project is progressing well and is on track to pour gold in the first half of 2024. It is expected to be one of the largest gold mines in Canada, with an average annual gold production of more than 400,000 ounces over the first five years and more than five million ounces of gold produced over its initial 14-year mine life.
The Zacks Consensus Estimate for the Vancouver, Canada-based company’s 2024 earnings has moved up 7% over the past 90 days. The consensus estimate indicates a substantial year-over-year improvement of 1,433%. EQX has a trailing four-quarter earnings surprise of 168%, on average. The company currently sports a Zacks Rank #1.
Agnico Eagle Mines: The company’s sufficient cash flow is enabling it to maintain a strong exploration budget, primarily focused on Kittila, Canadian Malartic, LaRonde, Kirkland Lake, Hope Bay and Santa Gertrudis. With the positive ruling by the Supreme Administrative Court of Finland allowing Kittila to continue to operate at a rate of 2 million tons per annum, AEM expects 30,000 ounces of additional production from the Kittila mine for the fourth quarter of 2023.
It also expects 2023 gold production to be at the upper end of the guidance between 3.24 million ounces and 3.44 million ounces. AEM continues to expand the exploration drilling of Roura Main, Sisar and Rimpi Zones to take advantage of better grades. LaRonde, Canadian Malartic and Nunavut are expected to be major drivers for cash flow generation over the next several years. A lower debt level contributes to its overall financial strength and stability. The company recently invested in Canada Nickel Company, which aligns with its strategy of early-stage project investments. This provides AEM an opportunity to establish a presence in an emerging nickel belt.
The Zacks Consensus Estimate for the Toronto, Canada-based company’s 2024 earnings has moved up 0.4% over the past 90 days. AEM has a trailing four-quarter earnings surprise of 9.91%, on average. The company currently has a Zacks Rank #3 and a long-term estimated earnings growth of 1%.
Kinross Gold: The company reported gold production of 585,449 gold equivalent ounces in the third quarter of 2023, which marked a 10.6% year-over-year increase. Tasiast delivered a record quarterly production, and sales due to strong grades and recoveries. Paracatu and La Coipa also witnessed year-over-year growth in their quarterly outputs.
Kinross has been on track to meet its production guidance of 2.1 million gold equivalent ounces (+/- 5%) and all-in-sustaining cost guidance for 2023. The company is tracking the bottom end of its 2023 production cost of sales guidance and the upper end of its capital expenditure guidance. The Tasiast 24k expansion project achieved a milestone with the completion of construction and initial commissioning. The project is expected to boost production, lower costs and lead to significant free cash flow. Manh Choh is advancing per plan and is expected to come online in the second half of 2024.
The Zacks Consensus Estimate for the Toronto, Canada-based company’s 2024 earnings has moved up 2.4% over the past 90 days. The consensus estimate indicates year-over-year growth of 2.13%. It has a trailing four-quarter earnings surprise of 40.9%, on average. KGC currently has a Zacks Rank #3 and a long-term earnings growth of 14.3%.
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Kinross Gold Corporation (KGC) : Free Stock Analysis Report
Agnico Eagle Mines Limited (AEM) : Free Stock Analysis Report
Eldorado Gold Corporation (EGO) : Free Stock Analysis Report
Equinox Gold Corp. (EQX) : Free Stock Analysis Report
