Gavin Graham’s Gold Gains

03/23/2016 9:00 am EST


Gavin Graham

Chief Strategy Officer, INTEGRIS Pension Management Ltd

Just three months ago, gold was hitting its lowest price in 8 years; since then, gold has rebounded in part due to expectations that the increase in US short-term interest rates will unfold at a slower-than-expected pace, explains Gavin Graham in Internet Wealth Builder.

Meanwhile, negative interest rate policies have been more firmly established in the Eurozone and Japan.

By some estimates, one-third of the multi-trillion dollar global government bond markets now offer negative interest rates out as far as five years.

In other developments that are sometimes used to explain gold price moves, commodity prices have rebounded, while political uncertainty has also risen.

Here's a review of the three gold mining stocks I recommended in December; I continue to rate each of these ideas as buys.

Goldcorp (GG) decided to cut the dividend by 75%. The sharp reduction is disappointing but there are other factors to consider.

Goldcorp is the largest gold miner by market cap and owns a well-diversified portfolio of properties in politically stable jurisdictions in North and South America.

It produced a record 3.46 million ounces at an all-in sustaining cost (AISC) of $852 per ounce.

The company has been able to generate positive cash flow even at a conservative gold price estimate of $1,100.

The replacement of long time CEO Chuck Jeannes by David Garofalo probably reflects some disappointment over the share price performance and capital allocation over the last few years. The stock still rates a buy.

Agnico-Eagle (AEM) also had record production, producing 1.67 million ounces in 2015 at an AISC of $810 per ounce.

Bolstered by the takeover of the Malartic mine in Quebec in 2014, production for the next three years is forecast to be 1.53 million ounces per annum, at an AISC of $850-890 per ounce.

Agnico-Eagle is one of the lowest cost producers and one of the best-positioned mining companies to benefit from a recovery in the gold price. It remains a buy.

Gold royalty company Franco Nevada (FNV) reported 2015 results on March 10th. They beat expectations on all counts and issued strong guidance for 2016.

In February, FNV received $920 million from the sale of 19 million shares and used $500 million to acquire of a gold royalty from the Antapaccay copper/gold deposit in Peru, reflecting its strong position as a provider of capital at the bottom of a bear market.

Franco Nevada offers the lowest risk exposure to precious metals. With a yield of 1.8 and no exposure to cost overruns or write-downs due to its royalty structure, this is the top company in the sector. Buy.

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By Gavin Graham in Internet Wealth Builder.

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