Gold And Goldminers: A Time To Buy

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Includes: BTG, FSM, KL, MUX, SBGL, SVM, WDOFF
by: WMA, LLC
Summary

Geopolitical, inflation, and recession risks all argue in favor of gold.

Favor small/mid cap miners over large cap miners.

Our fundamental scores are the best way to separate the wheat from the chaff.

On Thursday, the European Central Bank essentially told us that the "eurozone economy is slowing." They left interest rates unchanged at 0.00%, 0.25% and minus 0.40%, respectively on the main refinancing operations, the marginal lending facility and the deposit facility.

Although unsustainably low, the ECB repeated their position that rates would remain at these levels for much of 2019.

“The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.”

ECB president Mario Draghi noted that continued ECB monetary ease was based on several factors:

  • German auto production slowing;
  • U.S. trade actions are creating greater uncertainty due to tariff threats;
  • China slowdown; and
  • Brexit

The other black swan, and one that could impact markets faster that Draghi might have offered is the growing confrontation in Venezuela this week where U.S. interests in that country’s oil are aligned in direct opposition to the political support for president Maduro by Russia, China, Turkey and Cuba. The so-called “Breaking News” headline of CNN and other media is actually true at the moment as the world is watching closely.

To use street vernacular, the situation in Venezuela has gone nuclear given that president Trump has refused the order from Maduro to remove American diplomats, enabling U.S. media to dwell on the issue of personal security of Americans in that country. Trump has, in his presidency, threatened deployment of U.S. military, including ground troops.

With Maduro’s strong backing of its substantial armed forces and the actionable support from some of that country’s powerful allies, this conflict is far too big for incompetent Trump to manage. Besides, his own presidency is no stronger than Maduro’s at the moment.

The political and economic situation with some 800,000 U.S. government workers having missed a whole month’s wages reveals the amateurism of the current administration's policies. Trump's presidency is now opening mocked by the majority of Americans, including almost all its media. His pleading that the Mexican border is a national emergency and that he needs $5.7 billion to complete a barrier wall is falling on deaf ears.

Given that all nine members of the U.S. House of Representatives who represent the districts along the wall from California to Texas are dead-set against extending a barrier wall along the Mexican border via the use of eminent domain to confiscate property owned by Americans and the expenditure of billions of dollars to build a structure that is being climbed over and dug under, rendering it an ineffective solution to border immigration problems, Trump is now cornered.

The fear is that Venezuela could be his excuse to divert the U.S. Congress and the world from impeachment pressures he will, in our view, certainly face this year.

Geopolitics is usually a major factor in the price of gold, and we believe it is today for these reasons. Normally, these events quickly pass; however, the U.S. had not ever encountered a president the likes of Trump. His self-inflicted trade wars have now escalated to the potential of military wars on different fronts. The situation is dire. Trump is cornered but unyielding because his ego will not permit him to act prudently in typical U.S. presidential behavior.

Gold on Friday morning appears to be breaking out to the upside. Goldminers are attracting capital inflows as volumes are increasing as prices re-gain upside momentum. Gold prices started higher in mid-October as the Democrats became clear favorites to control the House, which became the case in November, now solidly in place under Speaker Nancy Pelosi who will not yield to the bullying tactics of president Trump.

Now, when facing global political turmoil and financial risk, is the time we need to assess the portfolio prospects of goldminers.

We have our favorites. Ours happen to be B2Gold, Wesdome Gold, Kirkland Lake Gold, Alamos Gold and McEwen Mining. The larger cap goldminers are more likely to be acquirers of smaller companies, paying a premium, thereby hurting their own share price at the time, so we avoid those.

Our top choices are small to mid-cap gold and silver producers, all with good sized precious metal resources, sound management, no debt and earnings and free cash flow prospects that will ramp higher with Gold prices over $1300/oz. Other companies we like are Fortuna Silver (FSM), Silvercorp (SVM) and Sibanye (SBGL). We have been in the following stocks in our Natural Resources portfolio.

B2Gold

One of the precious metal miners we like best is B2Gold (BTG) , which is a diversified mid-tier company that is becoming a major top-tier producer with 2019 production guidance of 935,000 to 975,000 oz with an All In Sustaining Cost (AISC) of $835 to $875/oz.

The key mines are Fekola in Mali (420k-430k oz 2019E), Masbate in Philippines (200k-210k oz 2019E), Otjikoto in Namibia (200k-210k oz 2019E) and the La Libertad and El Limon Mines in Nicaragua (combined 140k-150k oz 2019E).

We have known the CEO Clive Johnson since 1981. Excellent management. Continuously developing major new mines and growing its gold reserves. Good balance sheet with obvious very high profitability. A favorite of the buy side analysts.

Wesdome Gold Mines

A continuous favorite of ours as well as a new favorite of the buy-side analysts is Wesdome Gold Mines (TSX: WDO). We have long noted that this small but profitable zero-debt Ontario and Quebec producer and developer is likely to be acquired soon by a much larger company. We hold the stock at a very low cost basis and are hoping for a substantial 30% premium over market if, as and when a buy-out offer is received.

The 2018 production was 71,625 oz at an All In Sustaining Cost (AISC) of about US$1,000/oz that generated free cash flow of C$7.3 million, while the 2019 guidance is for 72,000-80,000 oz with an AISC of US$985-$1,040. At Nov. 1, 2018, the cash position was C$30 million and there was no debt.

Kirkland Lake Gold Ltd.

Kirkland Lake Gold is a favorite of the analysts and of Eric Sprott, a major shareholder. Rapidly growing into a top-tier gold producer, 2018 gold production was 723,477 oz from mines in Australia (356,230 oz from Fosterville) and Canada (Macassa (240,126 oz), Holt (67,770 oz), and Taylor Mines (58,633 oz)). The 2018 company record production was an increase of +21% over 2017. At Dec. 31, 2018, the cash position was US$332 million. Booming growth is expected to continue as guidance is 740,000 – 800,000 oz in 2019, 850,000 – 910,000 oz in 2020 and 945,000 – 1,005,000 oz in 2021

Alamos Gold Inc

Alamos founder (2003) and CEO John McCluskey has been a personal friend since the mid-1980’s. His well-managed company is well financed with US$206 million cash and zero debt. Four North American mines (65% Canada and 35% Mexico) produced 505,000 oz in 2018 with good production growth and expanding margins. Guidance for 2019 is for AISC to drop about -5% to US$920-$960/oz and also decline through 2021 although for 2019 production is not anticipated to grow much. However, there are six low-cost development projects (Turkey, US, Mexico and Canada) in the pipeline. The reserves have grown substantially and probably not yet fully priced into the stock.

McEwen Mining Inc. (MUX)

Rob McEwen the principal owner (23% of the company) has been a personal friend and a popular promoter for years. His income is $1/year with no bonus or stock options. See McEwen presentation and factsheet. The mines in Canada, the U.S., Mexico and Argentina have a high growth profile. The stock is well liked by analysts. Production grew from 152,000 oz in 2017 to 176,000 oz in 2018. Guidance is 201,000 oz in 2019 and 206,000 oz in 2020. Growth is coming from the new Gold Bar mine in Nevada, which is 25 miles south and on trend with Barrick’s massive mines.

Fortuna Silver Mines Inc (FSM)

Chairman Simon Ridgway is another promoter I like in this business. His company has had a good track record of sound operations and growth. Full year 2018 production figures from its two underground operating mines, the San Jose Mine in Mexico and the Caylloma Mine in Peru produced 8.9 million oz of silver and 54.2 thousand oz of gold, which is 12.8 million Ag equivalent oz. That was about 8% above guidance. The 2019 silver equivalent production guidance is 11.7 - 12.9 million oz and consolidated AISC is $9.9 - $12.1/oz Ag. Nothing spectacular, but solid. However, growth for 2019 and beyond may not meet investor expectations. See Fortuna’s corporate presentation.

Silvercorp Metals Inc (SVM)

This company is the major silver producer in China. For many years we have been a friend and supporter of founder and CEO Rui Feng and pleased to see how he steered the company away from illegal short-sellers and back onto the NYSE American. As at Sept 30, 2018, the cash position was US$124 million. No debt and strong free cash flow. The corporate presentation shows that since 2005 the company raised US$199 million but spent US$56 million to buy back 14 million shares and to pay out US$97 million in dividends. They also show the lowest AISC of US$2.34 for Ag and a higher Return on Equity (11.93%) than any of its key silverminer peer group. It must be said they “let the rock do the talk” as there are many other favorable peer group comparisons pointed to in the corporate presentation. FY2019 production guidance is substantially greater than 2018 actual. See Silvercorp’s corporate presentation.

Sibanye Stillwater (SBGL)

Not one to invest in South Africa gold mines for various reasons (currency rates, fatal accidents, worker problems, discounted valuations, weak balance sheets) – although at times in the past and recently we have been investors in the top-tier producer Sibanye Stillwater -- our fundamental scorecard gives Sibanye a very high growth score among the 58 precious metal miners we track weekly. In terms of Gold Equivalent Oz, the FY2018 production of the company is 4.3 Million oz compared to 5.0 Moz for Newmont (not including 2.5 Moz for Goldcorp) and 4.5 Moz for Barrick. The company is a major player in the Platinum, Palladium, Ruthenium and Rhodium markets as well.

Williams Market Analytics F-scores

For this article, we think our readers will appreciate a presentation of our relative fundamental rankings among 58 Gold and Silver Miners. It is always an eye-opener to see how each company fares relative to the others in its peer group.

The data changes weekly after each company reports. We graph the weekly scores over time to determine the trends.

Here are the 58 Gold/Silver Miner Peer Group Rankings based on selected fundamental scores.

Gold/Silver Producers

Ticker

Growth rank

PEG rank

EPS Revision rank

Revenue Revision rank

Valu- ation rank

PER rank

MV/ EBIT rank

Book Value rank

Yield rank

Profit- ability rank

Finan- cials rank

Analysts rank

Agnico Eagle Mines Ltd

AEM

11

12

28

10

40

NR

37

37

13

21

34

19

Alamos Gold Inc

AGI

22

13

44

23

22

40

23

11

19

29

17

27

Alio Gold Inc

ALO

7

6

NR

NR

3

8

28

4

NR

39

19

45

Almaden Minerals Ltd

AAU

NR

NR

NR

NR

NR

NR

NR

19

NR

NR

31

18

AngloGold Ashanti Ltd

AU

23

11

10

18

14

21

11

45

23

31

46

31

Asanko Gold Inc

AKG

NR

NR

40

40

2

10

4

10

NR

32

44

46

Avino Silver & Gold

ASM

3

2

NR

NR

5

34

17

5

NR

34

35

20

B2Gold Corp.

BTG

47

NR

35

13

23

15

14

47

NR

15

39

2

Barrick Gold Corp

ABX

27

29

36

3

33

29

22

31

4

12

45

47

Centerra Gold Inc.

CAGDF

48

20

18

26

8

11

5

26

NR

16

15

NR

Coeur Mining Inc

CDE

8

8

42

32

29

36

20

20

NR

35

40

8

Detour Gold Corp

DRGDF

44

39

16

12

28

25

21

23

NR

18

25

26

DRDGOLD Ltd

DRD

NR

NR

3

NR

18

NR

32

28

3

45

9

NR

Eldorado Gold Corp

EGO

24

14

33

21

17

6

10

2

NR

42

28

49

Endeavour Silver Corp

EXK

12

10

NR

41

21

30

30

18

NR

44

11

36

First Majestic Silver

AG

4

24

17

38

38

37

46

22

NR

40

12

14

Fortuna Silver Mines

FSM

18

16

27

17

16

13

16

7

NR

11

10

NR

Franco Nevada Corp

FNV

28

40

15

9

47

41

45

39

10

1

14

44

Fresnillo

FNLPF

39

41

24

31

35

19

27

14

2

10

18

29

Gold Fields Limited

GFI

14

7

39

34

11

33

7

49

9

14

41

38

Gold Resource Corp

GORO

NR

NR

NR

NR

26

NR

18

34

20

20

6

NR

Gold Standard Ventures

GSV

41

NR

14

NR

NR

4

NR

21

NR

NR

38

23

Goldcorp Inc.

GG

1

3

43

25

32

45

24

25

17

26

33

32

Golden Star Resources

GSS

16

5

NR

22

12

28

29

1

NR

41

55

28

Great Panther Silver

GPL

17

25

NR

35

9

20

44

13

NR

46

8

13

Harmony Gold Mining

HMY

26

9

2

20

1

9

2

41

1

37

49

51

Hecla Mining Co

HL

15

17

NR

36

36

NR

26

16

22

38

43

48

IAMGOLD Corp

IAG

37

27

38

28

7

32

12

24

NR

33

3

11

International Tower Hill

THM

NR

NR

NR

NR

NR

NR

NR

46

NR

NR

54

NR

Kinross Gold Corp

KGC

40

19

41

19

13

31

9

38

NR

23

32

43

Kirkland Lake Gold Ltd

KL

25

30

NR

NR

41

24

40

57

21

6

4

12

MAG Silver Corp.

MAG

NR

NR

37

NR

NR

2

NR

17

NR

NR

22

16

McEwen Mining Inc

MUX

10

NR

23

6

46

NR

NR

32

18

47

21

15

New Gold Inc.

NGD

49

15

1

33

19

5

6

6

NR

27

52

50

Newcrest Mining Ltd

NCMGY

34

32

25

29

37

22

36

51

8

13

27

42

Newmont Mining Cp

NEM

35

33

26

11

34

27

25

44

6

19

29

35

NovaGold Resources

NG

29

NR

4

NR

NR

3

NR

55

NR

NR

56

24

OceanaGold Corp

OCANF

36

35

6

7

30

14

19

42

16

8

24

NR

Osisko Gold Royalties

OR

45

31

20

37

42

44

39

12

7

36

36

21

Pan American Silver

PAAS

9

22

34

4

25

26

31

40

14

25

5

41

Paramount Gold Nev.

PZG

NR

NR

NR

NR

NR

NR

NR

36

NR

NR

57

4

Pershing Gold Corp

PGLC

2

NR

31

NR

4

NR

NR

8

NR

NR

50

40

Randgold Resources

GOLD

NR

NR

NR

NR

NR

NR

38

NR

NR

9

2

NR

Royal Gold Inc

RGLD

33

34

32

30

44

39

42

52

11

5

30

25

Sandstorm Gold Ltd

SAND

20

28

12

14

43

42

43

48

NR

4

1

10

Seabridge Gold, Inc.

SA

46

NR

21

NR

NR

NR

NR

50

NR

NR

7

1

Sibanye Gold Ltd

SBGL

5

1

22

5

6

17

3

9

NR

43

51

34

SilverBow Resources

SBOW

6

4

5

1

10

7

1

15

NR

3

53

33

Silvercorp Metals Inc

SVM

38

38

19

16

20

12

13

29

12

7

NR

9

Silvercrest Metals Inc

SILV

32

NR

8

NR

NR

1

NR

43

NR

NR

42

6

SSR Mining Inc

SSRM

31

37

11

15

31

38

34

53

NR

17

20

30

Tahoe Resources Inc

TAHO

13

21

NR

39

27

43

33

3

NR

30

13

37

Torex Gold Resources

TORXF

19

18

7

8

15

16

15

27

NR

28

47

7

Vista Gold Corp

VGZ

NR

NR

13

NR

NR

NR

NR

54

NR

NR

37

22

Wesdome Gold Mines

WDOFF

21

23

9

2

39

23

35

56

NR

22

16

3

Western Copper + Gold

WRN

42

NR

NR

NR

NR

NR

NR

30

NR

NR

23

17

Wheaton Prec. Metals

WPM

30

36

29

24

45

35

41

33

5

2

26

5

Yamana Gold Inc.

AUY

43

26

30

27

24

18

8

35

15

24

48

39

Here are the Gold/Silver Miner rankings out of all 5103 companies we rank every week.

Company

ticker

GRO rank (of 5103)

VAL rank (of 5103)

YLD rank (of 5103)

Agnico Eagle Mines Ltd

AEM

386

4318

2128

Alamos Gold Inc

AGI

1353

2745

2164

Alio Gold Inc

ALO

2060

1023

NR

Almaden Minerals Ltd

AAU

NR

5015

NR

AngloGold Ashanti Ltd

AU

351

1534

2358

Asanko Gold Inc

AKG

4300

494

NR

Avino Silver & Gold

ASM

1715

532

NR

B2Gold Corp.

BTG

3831

1961

NR

Barrick Gold Corp

ABX

1085

2900

1397

Centerra Gold Inc.

CAGDF

1147

293

NR

Coeur Mining Inc

CDE

939

2565

NR

Detour Gold Corp

DRGDF

2630

2309

NR

DRDGOLD Ltd

DRD

4125

3667

977

Eldorado Gold Corp

EGO

834

311

NR

Endeavour Silver Corp

EXK

2091

2570

NR

First Majestic Silver

AG

766

3678

NR

Fortuna Silver Mines

FSM

525

239

NR

Franco Nevada Corp

FNV

1940

3661

1694

Fresnillo

FNLPF

3138

1496

536

Gold Fields Limited

GFI

879

1441

1830

Gold Resource Corp

GORO

NR

3569

2053

Gold Standard Ventures

GSV

3974

4017

NR

Goldcorp Inc.

GG

659

3825

2226

Golden Star Resources

GSS

1010

1184

NR

Great Panther Silver Ltd

GPL

2560

2097

NR

Harmony Gold Mining

HMY

133

637

913

Hecla Mining Company

HL

1658

4034

2423

IAMGOLD Corp

IAG

2503

1155

NR

International Tower Hill

THM

NR

5050

NR

Kinross Gold Corp

KGC

1444

1487

NR

Kirkland Lake Gold Ltd

KL

3378

3959

2035

MAG Silver Corp.

MAG

4299

3899

NR

McEwen Mining Inc

MUX

2840

4916

2418

New Gold Inc.

NGD

355

335

NR

Newcrest Mining Ltd

NCMGY

2631

3390

1814

Newmont Mining Corp

NEM

2569

3137

1702

NovaGold Resources Inc.

NG

3437

4227

NR

OceanaGold Corporation

OCANF

1027

1552

1948

Osisko Gold Royalties

OR

2843

3939

1971

Pan American Silver Corp.

PAAS

284

2884

1815

Paramount Gold Nevada

PZG

NR

5035

NR

Pershing Gold Corp

PGLC

3717

3960

NR

Randgold Resources

GOLD

NR

5004

NR

Royal Gold Inc

RGLD

2844

2741

1899

Sandstorm Gold Ltd

SAND

823

4152

NR

Seabridge Gold, Inc.

SA

4098

5058

NR

Sibanye Gold Ltd

SBGL

100

240

NR

SilverBow Resources Inc

SBOW

3

607

NR

Silvercorp Metals Inc

SVM

2469

1341

2324

Silvercrest Metals Inc

SILV

3657

4037

NR

SSR Mining Inc

SSRM

1767

3418

NR

Tahoe Resources Inc

TAHO

1957

1638

NR

Torex Gold Resources

TORXF

158

1454

NR

Vista Gold Corp

VGZ

4254

5060

NR

Wesdome Gold Mines

WDOFF

205

2267

NR

Western Copper + Gold

WRN

4236

5027

NR

Wheaton Precious Metals

WPM

2729

3251

1538

Yamana Gold Inc.

AUY

2019

1677

2228

Conclusion

The macro backdrop is aligning in favour of the miners and gold. Late expansion inflation seems inevitable, especially with world interest rates below equilibrium and central bank balance sheets (money supplies) many times historical norms. Geopolitics offer additional reason to get into gold and the goldminers. Trump will make the safe-haven value of gold and goldminers a sought-after investment theme. We are seeking out the best miners among the small and midcap names, using our Fundamental scores to guide us to the most likely outperformers over the long-term.

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.