|Bid||16.20 x 2900|
|Ask||0.00 x 1800|
|Day's Range||15.91 - 16.54|
|52 Week Range||10.56 - 37.96|
|PE Ratio (TTM)||N/A|
|Beta (3Y Monthly)||-1.69|
|Expense Ratio (net)||0.94%|
Could the Newmont-Goldcorp Merger Form ‘The Go-To Gold Equity’?(Continued from Prior Part)Agnico Eagle Mines Whereas several gold (GLD) mining companies are likely to see M&As (mergers and acquisitions), Agnico Eagle Mines (AEM) may not be
Could the Newmont-Goldcorp Merger Form ‘The Go-To Gold Equity’?Consolidation in the gold sector Many gold sector (GLD) veterans have long been expecting consolidation in the gold sector (GDX). The world’s economically accessible reserves are
Newmont and Goldcorp Merger to Create World’s Leading Gold Miner ## Newmont-Goldcorp merger Today, Newmont Mining (NEM) and Goldcorp (GG) announced that they have entered an agreement in which NEM will acquire all of the outstanding shares of Goldcorp in a stock-for-stock transaction valued at $10 billion. Newmont will acquire each share of Goldcorp in exchange for 0.3280 NEM shares, which represents a premium of 17% based on the companies’ 20-day volume weighted average stock prices. ## Sector-leading gold combination Newmont Goldcorp’s reserves will be among the largest in the gold sector (GDX) (GDXJ). Moreover, the combined entity is targeting $1.0 billion–$1.5 billion in divestitures over the next two years to optimize gold (GLD) production at a sustainable rate. As per the press release, “In addition to providing shareholders the largest gold Reserves per share, Newmont Goldcorp will offer the highest annual dividend among senior gold producers.” ## Following Barrick-Randgold merger This transaction comes on the heels of the merger of Barrick Gold (GOLD) with Randgold Resources, which was completed on January 2, 2019. On September 24, Barrick Gold agreed to acquire Randgold Resources in a share-for-share deal. The merger created a sector-leading gold company, which owns five of the industry’s top ten Tier 1 gold assets. The combined entity has a market cap of ~$23.75 billion. It will also have the largest gold reserves among its senior gold peers (GDX) (NUGT). You can read Is Barrick Worth a Look after Its Merger with Randgold? for more details about the merger.
Jim Cramer Suggests Nervous Investors Buy Gold Now ## Cramer suggests adding gold Mad Money host Jim Cramer is advising investors to invest in gold (IAU) if they’re concerned about the Fed’s interest rate policy and the trade conflict between the US (SPY) (IVV) and China (FXI). Cramer said, “If you’re looking for an insurance policy against volatility and economic uncertainty, gold is a great way to go.” He added, “While I like the stock market here, as you know, now that the Fed has decided to be more patient, the whole point of diversification is to be prepared in case something goes wrong … and your thesis doesn’t pan out.” Read Bulls versus Bears on Wall Street: Time to Buy Gold in 2019? for major analysts’ take on the gold price outlook in 2019. ## What should investors buy? However, Cramer doesn’t recommend buying the actual metal. Instead, he recommends direct exposure through the SPDR Gold Shares (GLD), which is the largest gold-backed ETF. He thinks that GLD and other gold mining ETFs (GDX) (NUGT) reduce risk and inconvenience. In addition to GLD, Cramer also recommends a high-quality gold producer like Barrick Gold (GOLD). Recently, Barrick Gold and Randgold Resources’ merger was finalized, which canceled Randgold’s London listing. ## Barrick-Randgold merger created a mining behemoth Regarding the Barrick Gold and Randgold Resources merger, Cramer likes the merged company. He said, “The company has the lowest total cash costs among its peers — I like that — [and] it has a nicely diversified portfolio of assets across the world — I love that.” Read Is Barrick Worth a Look after Its Merger with Randgold? for more details on the new company’s operating metrics and its outlook after the merger.
On Friday, inflation data met expectations, which kept the U.S. dollar in check and allowed leveraged gold ETFs like the Direxion Daily Jr Gld Mnrs Bull 3X ETF (JNUG) and Direxion Daily Gold Miners Bull 3X ETF (NUGT) to post gains. The consumer price index for December came in line with expectations--down 0.1 percent from November and up 1.9 percent, year-on-year--marking the first decline in nine months. “Overall, inflation risks remain well in check and are well down the list of potential concerns for both the capital markets and the economy,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors.
Is Barrick Worth a Look after Its Merger with Randgold? (Continued from Prior Part) ## Tanzanian tax dispute One of the major overhangs on Barrick (GOLD) stock of late has been its subsidiary Acacia Mining’s issues with the Tanzanian government regarding taxes. The Tanzanian government banned mineral concentrate exports from the country in March 2017. It believed it wasn’t getting a fair share of profits from mining in the country. On October 19, 2017, Barrick announced that it and the government had agreed on a framework for a new partnership between Acacia and the government. The partnership would include the sharing of economic benefits generated by Acacia on a 50-50 basis going forward. However, this framework has yet to be implemented, and the issues are still ongoing. ## Bristow on resolution Mark Bristow, the CEO of the combined company, has expressed confidence that this conflict will be resolved. In a phone interview with Reuters, Bristow said that Barrick could buy the remainder of Acacia it doesn’t own or split the company among other options. He added, “This conflict has destroyed lots of value. We need to make sure there’s enough value to work out a solution that various interested and affected parties get something that’s fair and proper for them.” ## Bristow’s experience to come in handy Bristow has experience in resolving tax and other issues with governments in Africa. Lately, many miners (GDX) (NUGT) have been facing issues related to resource nationalism and governments demanding increased shares of mining from their countries in Africa. This phenomenon has also affected the likes of Kinross Gold (KGC) and Newmont Mining (NEM). Barrick expects more details on the resolution of the Tanzanian issue in the second week of February. In addition to a possible resolution, the company is expected to see a lot of other changes in February. It’s also reviewing the possible sale of a number of assets, and it could even acquire new assets. We’ll discuss more about these changes and other portfolio restructuring initiatives in the next article. Continue to Next Part Browse this series on Market Realist: * Part 1 - Is Barrick Worth a Look after Its Merger with Randgold? * Part 3 - Barrick Could Emerge Leaner and Stronger after an Asset Review * Part 4 - Could the Cleanup at GOLD Lead to Increased Shareholder Returns?
Is Barrick Worth a Look after Its Merger with Randgold? ## Barrick-Randgold merger complete The Barrick Gold–Randgold Resources (GOLD) merger recently completed, with the trading of new shares starting on January 2, 2019. The new company’s name remains Barrick, but its symbol will now be GOLD—previously Randgold’s symbol on the NASDAQ—on the NYSE. Randgold’s London listing has been canceled. The new company’s executive chair will be John Thornton, and its CEO will be Mark Bristow, former CEO of Randgold. ## Leading market position On September 24, Barrick Gold agreed to acquire Randgold Resources in a share-for-share deal. The merger has created a sector-leading gold company that owns five of the industry’s top ten Tier 1 gold assets. Along with owning five of the top ten Tier 1 gold assets (GLD), the combined company will have two high-potential Tier 1 assets in Fourmile and Turquoise Ridge. The combined entity has a market cap of ~$23.75 billion. It will also have the largest gold reserves among its senior gold peers (GDX) (NUGT). Moreover, Barrick has the lowest total cash cost position among its peers. ## Shareholder returns Proven management should drive returns, successful exploration, cost reduction, and efficiency throughout the new company’s combined asset portfolio. In a joint letter, Thornton and Bristow said that Barrick is placed to become the world’s most valued gold mining business, saying, “We will do so by optimising our existing operations, pursuing new opportunities that meet strict investment criteria and developing them with disciplined efficiency.” Continue to Next Part Browse this series on Market Realist: * Part 2 - Will the GOLD Merger Expedite the Tanzania Dispute’s Resolution? * Part 3 - Barrick Could Emerge Leaner and Stronger after an Asset Review * Part 4 - Could the Cleanup at GOLD Lead to Increased Shareholder Returns?
Is Gold Ready to Fly in the New Year? Investors’ economic and earnings outlook for 2019 is getting bearish. Leading indicators are signaling a slowdown in US economic growth, and earnings’ approaching deceleration is worrying investors.
The long-term performance of Kinross Gold (NYSE:KGC)stock has been, to put it bluntly, disappointing. Indeed, the KGC stock price today is nearly half of what it was in mid-2016, and it’s down 85% since the high it reached in 2011. Tepid gold prices get the bulk of the blame for the poor performance of KGC stock.
Last year was particularly calm as volatility plunged to a multi-decade low, but October’s elevated volatility sent equity markets into a tailspin. US–China (FXI) trade tensions, slowing global economic growth, the Fed’s latest rate hike and policy outlook, and the potential government shutdown have been major sources of volatility for US markets lately. Yesterday, the CBOE (Chicago Board Options Exchange) Volatility Index (VIX), the “fear gauge,” hit 28.38—its highest level since February.
For most of the year, gold prices (GLD) have languished, thanks to a strong US dollar (UUP), hawkish Fed rate hike outlook, and strength in the equity markets. For the last few months, though, some of these factors seem to be reversing course. Equity markets, for one, have remained quite fragile and volatile (VIX) since October.
Could Market Risks Bring Investors Back to Gold in 2019? The United Kingdom is set to leave the European Union (HEDJ) in March. A Withdrawal Agreement has yet to be approved by both the UK and European parliaments if the UK is to leave in a planned and orderly way. The Withdrawal Agreement, which UK Prime Minister Theresa May put together with the other 27 European countries, outlines the details of how the United Kingdom should leave the European Union.
Can Gold Continue to Rise on Equity Market Weakness? The World Gold Council (or WGC) chief market strategist and head of research, John Reade, analyzed gold’s performance in 2018. Reade maintained that these factors are unlikely to continue for a very long time.
Could Market Risks Bring Investors Back to Gold in 2019? During an investor webcast on December 11, DoubleLine CEO Jeffrey Gundlach painted quite a bearish picture of stocks, bonds, and the US economy (SPY)(DIA). Gundlach also cited an Atlanta Fed study that calculates that an unwinding of $600 billion from the Fed balance sheet is equivalent to three interest rate hikes.
Previously, we discussed Bank of America Merrill Lynch’s take on equity markets and risks facing markets in 2019. Similar to Bank of America, GS believes that tightening financial conditions could be key in the coming deceleration. It foresees the Fed raising rates in December, and then four times in 2019.
One of the ratios by which we can gauge a mining company’s debt-repayment capacity is the net debt-to-forward-EBITDA ratio, which indicates the number of years it would take for a company to repay its debt.
President Trump has made it clear time and again that he is not happy with the Federal Reserve raising rates (TLT) so quickly. Usually, presidents don’t interfere or comment on the Fed’s decisions. The Fed is seen as an independent authority, which is important to maintain economic stability.
Could Gold Be the Best Bet amid Increased Economic Uncertainty? In March this year, Goldman Sachs (GS) turned bullish on gold for the first time in the last five years. As reported by Bloomberg, Goldman Sachs’s (GS) analysts wrote, “While we think that the U.S. cycle still has room to run it doesn’t mean that markets will not worry about it coming to an end.” The analysts added, “Going forward, we expect market ‘fear’ of a U.S. recession to strengthen.
As Positive Catalysts for Gold Emerge, Which Miners May Benefit? Its stock price, analysts’ estimates, and its multiple took a severe hit after the Guatemalan government’s decision to suspend its Escobal mine license in July 2017. Next comes Hecla Mining (HL) with a multiple of 5.8x, representing a discount of 4.5% to its peers.
Goldcorp (GG) has quite a strong project pipeline in the gold industry. Goldcorp provided an update on the progress of these projects in its third-quarter earnings call. Peñasquito’s Pyrite Leach Project was fully constructed by the end of the third quarter and is undergoing pre-commissioning activities.
After significantly outperforming its peers (GDX)(NUGT) in 2017, Kinross Gold (KGC) has underperformed this year. KGC’s YTD (year-to-date) return is lower than that of its close peers Newmont Mining (NEM), Barrick Gold (ABX), and Goldcorp (GG), which have returned -14.4%, -12.1%, and -14.7%, respectively. Kinross Gold’s second-quarter results were in line, but its lower revenues due to lower production disappointed investors.
New Gold (NGD) stock has had the worst stock performance YTD (year-to-date) among the miners in our survey. Until October 17, 76% of its market value has been eroded in 2018. This is a significant underperformance to its peers (GDXJ)(NUGT).
Gold prices have declined ~6.4% YTD (year-to-date) after rising ~13.0% in 2017. Gold prices have failed to attract investors’ attention in 2018 despite many market uncertainties, including trade war tensions, the emerging market (EEM) currency crisis, and other geopolitical concerns. For more on gold’s price outlook, please read Why Gold’s Upside Potential Seems to Outweigh Downside Risks.
Analysts’ Views: Is It Time to Look at Gold Miners? Currently, 20 Wall Street analysts are tracking Goldcorp (GG) stock. About 65.0% of these analysts are recommending a “buy,” 30.0% are recommending a “hold,” and 5.0% are recommending a “sell.” Its current target price of $9.90 implies an upside potential of 65.0% based on its current market price.
In October, fund managers rotated to energy and material stocks while divesting growth and cyclical stocks. The overweight position in technology stocks declined significantly. As we highlighted in As Tech Leads the Market Decline, What are Investors Eyeing, tech stocks were the frontrunners in the sell-off as they are the same companies that have seen huge upward runs in 2018.