Gold has long been deemed a safe haven asset in times of uncertainty, meaning now is a good time to be looking again at gold. The prospect of a trade war between the US and China is one reason why gold is back on the agenda.
A quick overview of the top ASX gold miners reveals seven with double-digit 2-year earnings growth forecasts – and that was before any trade war jitters.
The first table lists three ASX miners with a global footprint. The second lists ASX miners that operate exclusively in Australia. All have survived gold market volatility over the past seven years and have solid prospects.
Newcrest Mining (NCM) is one of the world’s largest gold producers and the largest in Australia. The company has mines in Western Australia, Indonesia, Papua New Guinea and Africa in Cote d’Ivoire. Newcrest has two major exploration projects underway and has invested heavily in research and development of underground bulk-mining technologies, or caving mining. In effect, caving mining is an underground version of less costly open pit mining.
Cote d’Ivoire is one of the more stable places in Africa for mining operators, with rating agency Fitch assigning the country a “B+”, Outlook Stable rating in August of 2017. Newcrest reported profit declines in both its Full Year 2017 and Half Year 2018 Financial Results. The company recently had to shutter its flagship Cadia mine, but it is back in operation. The company’s positive earnings growth forecasts reflect growth at its Cadia mine and its Lihir mine in Papua New Guinea. Newcrest’s most advanced exploration project is Wafi-Golpu, also in New Guinea, with production anticipated in 2020. The project is a 50/50 joint venture with South Africa’s Harmony Gold.
Resolute Mining (RSG) may have the weakest metrics of any stock in both tables, but it is the only one with a consensus BUY rating, with four analysts at BUY and four at OUTPERFORM.
The company currently has two mines operating; one here in Australia and its flagship project, the Syama Gold Mine in Mali. Resolute will lower its operating costs by moving this to underground mining. The company has been successful with underground mining at its Ravenswood Gold Mine in Queensland.
Resolute has an advanced stage project – the Bibiani Gold Project – in Ghana. It would appear the upside of the Syama project is outweighing sovereign risk in the eyes of the analyst community. The country gets passing grades from the World Bank and other rating agencies, but with cautionary comments on the security situation, with Jihadist Groups remaining following a 2015 peace agreement. As recently as January of 2018 the Malian military was reported to be engaging Jihadist groups in the centre of the country.
Perseus Mining (PRU) is another analyst favorite, with a consensus OUTPERFORM rating and solid prospects. All of these miners have Price to Earnings Growth Ratios – that add future earnings to the venerable Price to Earnings Ratio – under 1.0, making them attractive to both value and growth investors looking for reasonably priced stocks.
Perseus operates exclusively in Africa in the countries of Ghana and Cote d’Ivoire. Ghana is considered a stable country, as is Cote d’Ivoire. However, recent problems with the military of Cote d’Ivoire may heighten the political risk in that country, according to some analysts. As of January of 2018, the company’s mines in Ghana and Cote d’Ivoire are both producing gold. By March the newest mine in Cote d’Ivoire had turned cash flow positive. Half Year 2018 Financial Results were dragged down by numerous one-offs, but EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortisation) reversed the prior year’s loss of $15.7 million to report a positive $34.8 million.
The next table lists the ASX gold miners with all operations here in Australia.
Evolution Mining (EVN) stormed back from a FY 2016 loss of $24.3 million to a profit of $217.6 million in FY 2017. Half Year 2018 results saw an 8% rise in underlying net profit. The company has five operating mines in Australia and has grown by acquisition to rank as Australia’s second largest gold miner, behind Newcrest Mining. Evolution has an interest in a sixth mine, Ernest Henry, acquired from global mining giant Glencore.
While all the ASX miners in the table have relatively low All in Sustaining Costs – a more accurate measure of the total costs of producing gold – Evolution’s costs across its five wholly owned mines range from a low of USD$530 per ounce to a high of USD$940 per ounce, with ASIC for the total group estimated at between USD$640 and USD$680.
Northern Star Resources (NST) is another former ASX Junior Miner that broke the top tier through acquisitions, ranking number three behind Evolution. The company began its buying spree back in 2010 and on 13 March announced yet another acquisition from Westgold Resources (WGX). This followed a February announcement that Northern Star was injecting $25 million dollars into exploration and development projects.
Northern Star has four operational gold mines, with three low cost underground mining centres. While rival Evolution Mining bumped Northern Star from the number two spot among ASX gold miners, both have rewarded their shareholders with their acquisition strategies, although NST is the clear winner here.
Regis Resources (RRL) pays a fully franked dividend with the highest current yield amongst these seven miners – 3.6%. Unlike its competitors that experienced some financial setbacks over the past years, Regis has grown both revenue and net profit in each of the last three Financial Years, increasing revenue over the period by 16.6% and profit by 59%. Half Year 2018 Financials continued the positive trend with an 18% revenue increase and a 39% profit increase, establishing a new record high profit for Regis. ASIC of $858 came in below company guidance and total gold production also set a new company record.
Like rival Regis Resources, Saracen Minerals (SAR) has increased both revenue and profit in each of the last three Fiscal Years. Half Year 2018 results also showed record gold production along with an astonishing 209% increase in net profit after tax and a 32% revenue increase. Following the report, analysts at BMO and RBC raised their target price for SAR to $2.00, with Macquarie raising its target price to $1.90. All three firms maintained their OUTPERFORM rating.
The company has two operating mines in Western Australia; the flagship Carosue Dam and the new Thunderbox mine. The company has four exploration sites in the vicinity of each of its two operational mines.
For FY 2017 Saracen reported earnings per share (EPS) of $$0.035, with analysts estimating EPS to rise to $0.12 in FY 2018 and $0.147 by FY 2019.