Gold And Silver Now And Forecast Target Price Adjustments For End 2018

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Includes: AEM, FCX, FNV, GFI, GLD, GOLD, HL, NEM, RGLD, SAND, SBGL, WPM
by: Lawrence Williams
Summary

Our precious metals-related stock selections of late December last year have underperformed along with the corresponding metals prices.

We anticipate an improvement in precious metals prices in the remaining months of 2018.

We have re-worked our tabulation of stock and metal price predictions and look for growth over the remainder of the year.

After a promising start to the year, precious metals have been having something of a torrid time, mostly courtesy of what appears to be a much stronger U.S. dollar. Metals prices are mostly quoted in U.S. dollar terms and virtually all have seen dips in that currency over the half year. Mining equities have perhaps not, for the most part, done quite as badly as some miners are seeing a better price performance in the countries in which their operations are based. Of the stocks we picked at end-2017, two are actually up over the period (NEM and RGLD) despite the weak precious metals performance over the year to date.

At the end of last year, we made certain predictions on the likely progress of precious metals and equity prices for the current year and these have nearly all proved over-optimistic as far as the year-to-date is concerned although we remain confident in the longer term future of precious metals, particularly gold and silver. For our original projections and reasoning click on Gold, Silver, Platinum, Palladium - Price And Stock Forecasts/Recommendations for 2018. Perhaps we need a bit of a rethink as far as the current year is concerned although we still remain basically positive as can be seen from the adjustments noted in the revised table below.

Table 1: Recommended Precious Metals Stocks and Price Targets for end 2018

Stock, Commodity or Index

Price/Value December 22nd

Target end 2018

Price/Value July 25th

Adjusted target end 2018

Agnico Eagle Mines

45.32

$55.00

$44.46

$50.00

Newmont Mining

36.92

$44.00

$37.13

$43.00

Gold Fields

4.05

$5.00

$3.64

$4.50

Randgold Resources

96.05

$120.00

$72.83

$97.50

Freeport-McMoRan

18.10

$23.00

$16.07

$18.25

Sibanye Stillwater

4.87

$6.00

$2.30

$3.50

Hecla Mining

4.05

$6.00

$3.45

$4.50

Franco-Nevada

78.50

$95.00

$72.64

$85.00

Wheaton Precious Metals

22.30

$27.00

$21.21

$25.10

Royal Gold

86.56

$105.00

$90.62

$105.00

Sandstorm Gold

5.04

$6.50

$4.35

$5.50

Dollar Index

93.32

90.5

94.5

90.5

Gold Price

$1,274.50

$1,425

$1,230

$1,375

Silver Price

$16.37

$20.50

$15.55

$19.50

Platinum price

$918.00

$1,105

$840

$900

Palladium price

$1,029.00

$875

$926

$975

Most of the above adjustments are predicated on a drop in the dollar index, to where we predicted it would be in our end-2017 table and a corresponding rise in precious metals prices in U.S. dollar terms. We are still forecasting a decent rise in gold and silver prices by the year-end, although we expect platinum and palladium prices remaining subdued. Gold we see recovering to around $1,375 and with a likely decline in the gold:silver ratio to perhaps 70.5 by the year end we see silver ending the year at around $19.50. We also think it's important to look at dividends as most of the mining stocks we recommend are dividend payers.

In general, we remain pretty confident in our choices of precious metals miners and royalty/streaming companies to follow. Under our revised scenario probably the only stock we'd remove from our original list is Sibanye Stillwater (NYSE:SBGL) which has significantly underperformed so far this year.

The best two performers since our December 22nd analyses among the gold miners are Newmont Mining (NYSE:NEM) and Agnico Eagle mines (NYSE:AEM). The former is on target to become the world's largest gold miner this year, usurping the position held by Barrick Gold (NYSE:ABX) for the past several years and has actually seen its stock price increase since our December tabulation - how much better it would have done if the gold price had performed to expectations! In our view, the company's position as being the world's largest producer of the yellow metal will make it the go-to stock should precious metals start to come back into favor with major funds and institutions which for the most part have been reducing, or dropping altogether, gold miners from their investment portfolios.

Unlike Barrick, which has been reducing gold output (2018 gold production guidance is between 4.5 and 5.0 million ounces with further falls as time progresses), primarily through asset sales as a means of reducing its long-term debt, Newmont is currently predicting slightly higher gold output in 2018 of between 4.9 and 5.4 million ounces of gold with a falling AISC profile, but maintained production going forwards. It remains a low-cost producer with most of its output in what are considered safe political environments - notably the USA and Australia and remains decently profitable at current gold prices. Newmont also pays a decent dividend currently yielding around 1.5%.

Agnico Eagle is somewhat smaller in production terms with 2017 output of around 1.7 million ounces and has a recent history of outperforming guidance and market projections. Guidance for 2018 is to produce 1.58 million ounces but this is set to rise in 2019 and beyond anticipating output of around 2 million ounces in 2020. Production is again mostly in 'safe' political jurisdictions with the bulk in Canada - as are its major development projects. Outside Canada, it has significant operations in Finland and Mexico. It too is a good dividend payer currently yielding around 1%.

Going down our listing of precious metals mining stocks to follow, Gold Fields (NYSE:GFI) is currently the world's 9th largest gold miner by production despite divesting the bulk of its original South African mines to set up what is now Sibanye Stillwater (the world's 13th largest gold miner). It still retains South Deep in South Africa - one of the world's largest gold resources - but technical difficulties in achieving profitable production there have continued to dog the company. Nevertheless, it has a strong gold production profile with some very promising new projects under development. Annual gold output is a little over 2 million ounces of gold equivalent. Gold Fields is also a dividend payer yielding 1.87% at its current stock price.

Randgold Resources (NASDAQ:GOLD) is, in our opinion, one of the most under-rated gold miners, probably because all its mining operations are in West and Central Africa. It has a good track record of maintain dialogue, and good relationship with its host governments and has been highly successful in building up its gold output. It has grown to become the world's 15th biggest gold miner with production in 2017 of some 1.315 million ounces and is guiding 1.3-1.5 million ounces for the current year. Its dividend yield though is a top-of-the-class 2.75% at its current stock price having recently doubled its payout to $2.00 a share.

The final gold miner remaining on our 2018 recommendations is Freeport-McMoran (NYSE:FCX) which is primarily a copper miner but remains the world's 11th largest gold producer in its own right principally from its huge Grasberg operation in Indonesia. This is perhaps even more of a speculation on growth in the copper price than the gold price and we feel the prospects for copper remain strong - particularly if the dollar index should fall in H2 as we expect. FCX yields 1.24% at its current price.

Here follows a tabulation of the World's top 20 gold miners in 2017 with our recommendations highlighted in bold type.

Table 2: Top 20 Global Gold Mining Companies 2017 (Tonnes) (1 tonne= 32150.7 troy ounces)

Rank

Company

2017 Output

1

Barrick Gold

165.6

2

Newmont Mining

163.8

3

AngloGold Ashanti

116.8

4

Goldcorp

79.9

5

Kinross Gold

78.6

6

Navoi MMC (est)

75.5

7

Newcrest Mining

71.1

8

Polyus Gold

67.2

9

Gold Fields

62.6

10

Agnico Eagle Mines

53.3

11

Freeport-McMoran

49.1

12

Shandong Gold

43.9

13

Sibanye Stillwater

43.6

14

China National Gold

42.4

15

Randgold Resources

40.9

16

Zijin Mining

35.8

17

Harmony Gold

34.0

18

Polymetal

33.5

19

Glencore

32.1

20

Yamana Gold

30.4

Source: Metals Focus, lawrieongold

The next miner on our list is Hecla Mining (NYSE:HL), primarily a silver miner, but with significant gold production too. Its stock price has been held back by an over year-long labor dispute at its flagship Lucky Friday silver mine in the U.S. but it has managed to remain profitable despite this and the stock should be due a decent recovery if, and when, the industrial action ends. Recently Hecla has added to its gold mining portfolio through the acquisition of Klondex Mines' Nevada properties - the Fire Creek, Midas and Hollister mines. The purchase will give Hecla a 110-square-mile land position in Nevada. Hollister, in particular, is an ultra-high grade mining operation although gold extraction there has been beset by technical difficulties. Hecla reckons to be a specialist in operating narrow vein type deposits of this type - we shall have to wait and see! Dredging my memory Hecla did a considerable amount of work on Hollister before divesting itself of the project 11 years ago. Perhaps it will do better second time around!

The rest of the stocks we recommended last December were in the royalty/streaming sector - Franco Nevada (NYSE:FNV), Wheaton Precious Metals (NYSE:WPM), Royal Gold (NASDAQ:RGLD) and Sandstorm Gold (NYSEMKT:SAND). We still like the sector - it carries much of the upside potential of the companies it works with without many of the inherent risks to which mining companies are exposed. As can be seen from Table 1 above as a group they did rather better than most of the mining companies - indeed RGLD even appreciated by around 4.7% despite the generally poor metals price performance since late December last year.

The take-away from the above is that even with the well below expectation performance of the precious metals prices, few of the originally chosen stocks proved to be disastrous investments. Should precious metals prices advance in the second half of the year, as we think they will, then there should still be some excellent gains to be made in the originally recommended stocks.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.