I’m convinced that gold prices will be rising sharply in coming years, in part because of China’s intention to introduce a new monetary system centered on gold, explains, asserts Stephen Leeb, an industry-leading growth stock expert and editor of Investing Daily's Real World Investing.
Gold will be in high demand, and gold mines with the potential to increase production over a lengthy period of time — a rare breed — will, in all meanings of the phrase, be gold mines for investors.
Two of our gold recommendations, Evolution Mining (CAHPF) and Endeavour Mining (EDVMF) are potential takeovers; but takeover or not, they are great mines and both of these gems deserve a place in the part of your portfolio devoted to commodities and gold.
A common denominator is that for each company, the largest shareholder is Egypt’s wealthiest family, headed by Naguib Sawiris, Egypt’s wealthiest individual. That Sawiris made his fortune through a string of very successful ventures and investments is strong testament to his financial and business acumen.
But we are not just blindly following Sawiris. The mines’ fundamentals speak volumes about their potential, which in both cases is several times their current price. Of the two, Endeavor, whose properties are situated mostly in West Africa, has the greater potential but also because of its location greater risks.
The miner has five producing properties in three African countries: Ivory Coast, Mali, and Burkina Faso. While each of these countries has had its share of political issues in the past, all appear on a strong market track, with Endeavor recognized as playing an important role in these countries’ future.
The company’s record has been one of strong production growth and declining costs combined with excellent financial management, assuring Endeavor of funds for further exploration and strong growth well into next decade.
The company should begin the next decade with production of 900,000 ounces and its eyes firmly set on reaching 1 million ounces by very early next decade. Costs should continue to decline, implying sharp five-year growth in all relevant metrics.
Turning to Evolution, with six producing properties in Australia the miner has production growth that’s less dynamic than Endeavor’s but still very strong. The company’s growth has resulted from successful exploration activities as well as some timely acquisitions and divestitures.
From 2013, production has approximately doubled to an estimated 800,000 ounces in 2018. Costs have fallen, and margins have climbed. Despite rising capital expenditures, FCF yield should exceed 8% in both 2018 and 2019. Strong growth in both reserves and resources points to sustained production growth in the context of very strong financials.
Indeed, the financials are strong enough to support a dividend equal to a yield of 2%. We expect the dividend to grow steadily in the years ahead, making Evolution one of the most dynamic total return stocks in the commodity space.
Projections for both stocks assume gold prices remain largely unchanged into the future. Under that conservative assumption, both stocks are undervalued and should rise on the back of their strong gains in free cash flow and profits. But a rise in gold, which is my expectation, will turn both these mines into burgeoning powerhouses. Both of them are compelling recommendations.
