The prospects for the Zacks Mining – Gold industry look bright, backed by the 27% gain seen in gold prices so far this year. The bullion is expected to end the year at around $3,000 an ounce, boosted by expectations of another rate cut by the Fed and a broader conflict in the Middle East.
With gold prices expected to increase further on demand-supply imbalance, companies like Newmont, Agnico Eagle Mines, Barrick Gold Corp., IAMGOLD and Idaho Strategic Resources are well-poised to capitalize on this, backed by their strong balance sheets, efforts to lower costs and growth initiatives.
About the Industry
The Zacks Mining – Gold industry comprises companies engaged in extracting gold from mines. These mines may either be underground or open pits. Mining is a long and complex process, and requires significant financial resources. It involves exploring to evaluate a deposit’s size; assessing ways to extract and process more efficiently, safely and responsibly; and developing the mine before the actual mining process.
It usually takes 10-20 years for a gold mine to produce material that can finally be refined. Nowadays, industry players 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
Solid Trend in Gold Prices to Drive Industry Growth: Gold prices have delivered a 27.1% year-to-date gain, surpassing the performance of most major asset classes. The rise has also outscored the 12.8% rise witnessed by the bullion in 2023. Several factors have contributed to this solid performance in 2024, including heightened geopolitical tensions, interest rate cuts and ongoing central bank purchases.
Gold prices are currently around $2,620 an ounce. Markets are presently pricing in an 89% probability that the Fed will implement a modest 25-basis-point rate cut in November. Also, gold’s safe-haven demand is supported by fears of a broader conflict in the Middle East. Analysts expect gold prices to scale to around $3,000 an ounce by the end of this year, backed by solid demand amid limited supply prospects.
Efforts to Counter High Costs to Sustain Margins: The industry has been facing a shortage of skilled workforce, causing a spike in wages. Industry players are 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, as well as lowering unit net cash costs.
The industry participants are opting for alternate 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.
Demand & Supply Imbalance to Support Prices: Depleting resources, declining supply in old mines and the lack of new mines have been 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 strength in India is leading to wealth-driven buying. The yellow metal has long been considered a safe-haven investment amid financial or political uncertainty.
Central banks have been ramping up reserves held in gold due to currency depreciation, and geopolitical and economic risks. In 2022, central banks added 1,082 tons of gold, marking the highest annual purchase on record, followed by 1,037 tons of gold purchases in 2023. According to the 70 responses to the 2024 Central Bank Gold Reserves survey, 29% of central banks plan to increase their gold reserves in the next 12 months. This is the highest projection since the initiation of the study in 2018. Therefore, there will be an eventual demand-supply imbalance, which will likely drive gold prices.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. The Zacks Mining – Gold Industry, which is a 37-stock group within the broader Zacks Basic Materials sector, currently carries a Zacks Industry Rank #69, which places it in the top 27% of 250 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 outperformed the sector over the past year and the Zacks S&P 500 composite over the same time frame. The stocks in the industry have collectively grown 42.5% compared with the broader sector’s rise of 11.6%. The S&P 500 has jumped 30.4% 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 6.37X compared with the S&P 500’s 14.47X and the Basic Material sector’s forward 12-month EV/EBITDA of 7.46X.
Over the last five years, the industry traded as high as 8.36X and as low as 4.95X, the median being 6.35X.
5 Mining-Gold Stocks to Bet on
Idaho Strategic Resources: The company delivered year-over-year surges of 89% in revenues and 467% in earnings per share in the second quarter of 2024. This is attributed to stable operations, increased head grade and high recoveries. An exploration program consisting of underground and surface core drilling was started at the Golden Chest mine in the second quarter.
IDR aims to produce 10,000-15,000 ounces of gold per year from the mine at all-in sustaining costs of $1,300 per ounce. The Golden Chest is an orogenic deposit and has the scope to extend to great depths. IDR plans to drill in the adjacent Buckskin, King and Butte Gulch properties focused on narrow-vein underground mining potential. A paste backfill plant is in progress, which is expected to reduce costs by $0.5-$0.8 million per year. The company will reinvest cash flow into the development of the Golden Chest Mine, the regional exploration at the Murray Gold Belt and the Eastern Star gold target in central Idaho while investing in Rare earth element projects.
Headquartered in Coeur d’Alene, ID, the company engages in exploring for, developing and extracting gold, silver and base metal mineral resources. The Zacks Consensus Estimate for earnings for fiscal 2024 has moved up 167% over the past 60 days. The estimate suggests year-over-year growth of 700%. Idaho Strategic Resources has a trailing four-quarter earnings surprise of 117%, on average. The company currently flaunts a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
IAMGOLD: The company continues to invest in maximizing production and increasing the life of its existing mines, advancing development and exploration projects. Significant operational projects planned for the next years include the Westwood ramp-up to safely access other mining areas affected by the seismic activity in 2020. Plans include mill and plant upgrades, fleet and utilization improvements, tailings and surface water management optimization, and additional pit developments at Essakane.
These projects are expected to reduce or control the company’s cost structure and improve efficiency. The Côté Gold Project started commercial production on Aug. 2, 2024. It is expected to achieve the target of a 90% throughput by the end of the year. IAG has recently exercised its right to repurchase a 9.7% interest in the mine, taking it to a 70% ownership. In the first six years of operation, Côté Gold’s expected gold output will likely be 495,000 ounces. Over the life of the mine, it will average 365,000 ounces per year.
The Zacks Consensus Estimate for this Toronto, Canada-based intermediate gold producer’s earnings for fiscal 2024 has moved up 53% over the past 60 days. The estimate suggests year-over-year growth of 444%. IAG has a trailing four-quarter earnings surprise of 200%, on average. The company currently carries a Zacks Rank #2 (Buy).
Newmont: Backed by its strong liquidity position and substantial cash flows, the company continues to invest in growth projects. Its ongoing projects, including Tanami Expansion 2 in Australia, the Ahafo North expansion in Ghana and Cadia Block Caves in Australia, are expected to boost production capacity and extend mine life, driving revenues and profits.
The acquisition of Newcrest Mining Limited last year created an industry-leading portfolio with a multi-decade gold and copper production profile in the most favorable mining jurisdictions globally. The combination of Newmont and Newcrest is expected to deliver significant value for shareholders and generate meaningful synergies, with $500 million in total annual pre-tax benefits expected by the end of 2025.
Colorado-based Newmont has a long-term estimated earnings growth rate of 39.3%. The Zacks Consensus Estimate for earnings for fiscal 2024 has moved up 8% over the past 60 days. The estimate indicates year-over-year growth of 92.6%. NEM has a trailing four-quarter earnings surprise of 19.2%, on average. The company currently carries a Zacks Rank #2.
Agnico Eagle Mines: Earlier this year, the company completed an updated mineral reserve estimate, and an updated life of mine plan for its Detour Lake mine. With the development of an underground mine to complement the existing open pit mine and the mill optimization, AEM sees the potential to increase the Detour Lake mine’s overall production to an average of one million ounces of gold per year over 14 years starting in 2030. This is in sync with AEM’s strategy to unlock the value of its assets in the Abitibi region, which is considered one of the best in the world for gold mining.
The company continues to lower debt levels, focusing on capital discipline and cost control, investing in its project pipeline, and providing returns to shareholders. Agnico Eagle has made a string of recent equity investments to grow its holdings of junior mining companies, given its recent focus on increasing base metal exposure.
The Zacks Consensus Estimate for the Toronto, Canada-based company’s 2024 earnings has moved up 6% over the past 60 days, indicating year-over-year growth of 74%. AEM has a trailing four-quarter earnings surprise of 15.7%, on average. The company has a long-term estimated earnings growth of 28.2% and a Zacks Rank #2.
Barrick Gold: The company is well-placed to benefit from the key growth projects that should significantly contribute to its production. Its major gold and copper growth projects, including Goldrush, the Pueblo Viejo plant expansion and mine life extension, Donlin Gold, Fourmile, Lumwana Super Pit and Reko Diq, are currently in execution.
The recently commissioned Goldrush mine is ramping up to a targeted 400,000 ounces of production per year by 2028. The feasibility study for the Super Pit Expansion is expected by the end of the year, and construction is anticipated to start in 2025. Barrick also has a strong liquidity position and is focused on boosting shareholders’ returns by leveraging solid cash flows. Its debt-reduction actions are expected to lower interest expenses.
This Toronto, Canada-based company has a long-term estimated earnings growth rate of 32.9%. The Zacks Consensus Estimate for GOLD’s fiscal 2024 earnings has moved up 9.5% over the past 60 days. The company has a trailing four-quarter earnings surprise of 21.2%, on average. Barrick Gold currently carries a Zacks Rank #2.
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