Three Picks to Play Gold Mining

06/05/2019 5:00 am EST

Focus: COMMODITIES

Adrian Day

Chairman and CEO, Adrian Day Asset Management

Several major gold companies on our recommended list look like good buys now, notes internationally recognized resource sector expert Adrian Day, editor of Global Analyst.

Newmont (NEM), which we acquired following its purchase of holding Goldcorp., released latest results showing solid operations on lower costs. Newmont has issued conservative forecasts on Goldcorp’s assets; we anticipate a cut in reported reserves at some of these properties.

Goldcorp’s mine Penasquito in Mexico remains closed amid a blockade by contractors. With a low geopolitical risk profile, a deep project pipeline, and a strong balance sheet, Newmont could do well in any positive gold environment. We would, however, look for a pullback towards $30 to buy.

Osisko Royalties (OR) reported lower “production” and higher development expenses than estimates; it included an impairment charge on its Renard diamond stream, following a charge by the mine’s operator. Osisko maintained its guidance for the full year, however, indicating improvement in coming quarters.

The company has a reasonable balance sheet, with net debt of $216 million and an investment portfolio valued at quarter end at $404 million (up from $397 million at year end). Though the entire portfolio could not be sold (and is not for sale), it does provide a source of liquidity from time to time.

Osisko is also continuing its major share repurchase program, buying 1.7 million shares so far this year. With the stock price down from over $11 for most of this year until this month, it would be reasonable to assume the repurchase program is continuing, and provides some downside protection. Osisko is a buy at this price.

In addition, Franco-Nevada (FNV) released strong financials, with earnings above consensus on the back of record metals revenues, boosted by an increase in oil & gas revenues.

The results were aided by Candelaria, where operations are now back to normal after a pit wall slide in late 2017 which hurt production over the past year; Stillwater, on the back of strong palladium prices; and Sudbury.

Guidance for the next major revenue source—Cobre Panama—remains unchanged, with first copper shipment this quarter, and significant ramp-up throughout the year.

With over $1 billion in available liquidity, Franco is in a strong position to make other acquisitions, perhaps helping companies wanting to purchase one or more of the mines expected to be sold by Newmont and Barrick following their major acquisitions (Goldcorp and Randgold respectively).

Franco remains our core gold holding, though having moved from $69 in last April, we would wait for a pullback before additional buying.

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