By Ben Granger
Over the past two months, the gold and precious metals markets have been surprising investors with prices remaining flat or even stalling despite growing demand for bullion coins.
We think the U.S. Mint is still rationing gold and silver coin sales due to overly strong demand.
In our view, that hasn’t happened since 2008.
In other words, we think there’s ongoing gold-buying interest very similar to that recorded during the last financial crisis.
More importantly, Mint director Ed Moy has said gold is poised to hit record highs before this bull run is over.
In 2020, the Mint sold 844,000 ounces of its American Eagle gold bullion coins, or 455% higher than the 152,000 coins sold in 2019. The silver jump was big, too, but not quite as dramatic after sales of the American Eagle silver bullion coins doubled to 30 million ounces in 2020 from 15 million sold in the previous year.
This trend has not stopped in 2021, with an additional 220,500 ounces of gold American Eagle coins sold in January alone along with another 4.775 million ounces of its silver counterpart.
Despite those massive stimulus packages and ongoing rollout of Covid-19 vaccines, it’s abundantly clear to us that fear still rules the financial markets–and in our opinionfor good reason.
Sure, Treasury yields have increased, with the 10-year note more than doubling from 0.51% in August to 1.19% currently. In our view, the rising yields have taken some shine off gold.
But make no mistake about it: Stimulus packages on the scale we are witnessing today are completely unprecedented and could very well come back to bite us as New York Times bestselling author and founder of ‘The Bear Traps Report’ Lawrence ‘Larry’ McDonald warned last year.
The U.S. economy remains very weak, with jobless claims high and declining Covid-19 cases providing little relief for the jobs market. The week’s total ended February 6 was well above the 760,000 consensus forecast, though continuing claims for benefits declined to a 10-month low of 4.54 million.
Meanwhile, we think the Covid-19 war is very far from being won, with new variants of the virus threatening to overrun us and reverse our gains over the past three or four months.
It’s exactly the kind of mayhem that we think pushed gold prices to an all-time high of $2,075 per ounce in August.
“If gold follows the same pattern as during the financial crisis, watch for gold prices to climb over the next couple of years until the economic uncertainty and the fear of inflation subside. Before going down, gold will set new historical record highs above the 2020’s August high,” Mint director Moy says.
Bearing this in mind, we believe buying gold at these levels appears like a good idea.
We think buying gold bullion is good, but we also think stocks of many gold miners do far better at multiplying gold moves 1,5x. 2x or even 3x.
Here are our picks for the best gold stocks to watch in 2021:
#1 AngloGold Ashanti (NYSE:AU)
AngloGold Ashanti is a Johannesburg, South Africa-based gold mining company. The company owns and operates 14 mines in nine countries in Africa, the Americas, and Australia.
AngloGold has been recording highly impressive bottom-line expansion.
AngloGold has announced that it expects FY 2020 headline earnings at $962M-$1.03B with headline EPS at $2.29-$2.47, well above 2019 headline earnings of $379M and $0.91, respectively.
Those earnings appear even more impressive when you consider that they will come on anticipated production decline of 7% Y/Y to 3.05M oz. from 3.28M oz. in 2019, after the company sold its remaining South African operations including the Mponeng mine but also due to the pandemic.
The miner’s performance has been underpinned by a record year at Geita as well as remarkable performances at the Kibali, Sunrise Dam, Iduapriem, Siguiri, and AGA Mineração operations.
The expected earnings increase is partly due to a 27% average increase in gold price and weaker local currencies offsetting inflationary increases across operating jurisdictions.
Most successful investors understand that if you are able to invest in a company before it hits the mother lode, you could be rewarded very handsomely.
The leverage increases if it’s a junior gold miner during a bull market because juniors are typically very sensitive to the price of gold.
Starr Peak’s project is very close in proximity to the property of Amex Exploration (TSX-V:AMX). Amex hit high-grade gold in three distinct zones, including its 100% owned Perron Gold Project located in Quebec.
That’s because the miner commenced drilling on what could turn out to be a premium-grade gold asset in January with a real proven pedigree. In early March, the Company announced they were bringing a second drill rig on property to join in on the program. In our view, this sort of move is only done if the drilling is going very well. We expect to see the highly-anticipated drill results any day/week with results continuing throughout the summer.
Starr Peak (TSX.V:STE; OTC:STRPF) has commenced drilling on the Main bloc of its NewMétal property, covering the past-producing Normétal Mine, from which ~10.1M tonnes of 2.15% Cu, 5.12% Zn, 0.549 g/t Au, and 45.25 g/t Ag were produced. In our view, this greatly reduces the risk of disappointing investors with its plans, given that Starr Peak has confirmed grades and favorable historic results for the area about to be drilled.
The anticipation of positive results for Starr Peak stems from the neighboring Perron Property, which was acquired in 1996 by Amex Exploration. Meanwhile, the Eastern Gold Zone was only discovered in December of 2017 during a regional exploration drilling campaign. At the time AMEX stock was trading at about $0.35. Following the discovery, AMEX stock traded well north of $3.00 with a 52-week high of $4.19, or a 1,000%+ increase–a formidable increase from a neighboring mining company.
What is thought to have originally brought AMEX to the Abitibi greenstone belt area of Quebec, Canada was that of a past-producing mine referred to as the ‘Normetal Mine’. The mine is located just 8+ kilometers to the NW of the village of Normetal, and approximately 110 kilometers North of the town of Rouyn-Noranda. With the announcement that Starr Peak secured a diamond drill rig for its drilling program, Starr Peak identified that it is targeting drilling in the area of the Main Bloc which consists of the areas surrounding the Normetal Mine.
In our view, it’s not much of a stretch for investors to anticipate such interest rubbing off positively to that of Starr Peak.
Investors can expect announcements for these drilled holes to be released in the coming days and weeks, with Starr Peak now ready to take advantage of their close proximity to that of the neighboring Amex Exploration (TSXV: AMX).
#3 Kinross Gold (NYSE:KGC)
Kinross Gold Corporation is a profitable company–consistently.
It’s a safer bet, if not one that will deliver you stunning upside. This is for the more cautious gold investor.
Kinross has grown earnings per share (EPS) annually by 44%, compound, for the past three years.
It’s a diversified gold company that engages in the acquisition, exploration, and development of gold properties in Canada, the United States, Russia, Chile, Brazil, Ghana, and Mauritania.
Just like AngloGold, Kinross has been enjoying dramatic improvements in profit margins and cash flow thanks to the surge in gold prices–and this trend appears set to continue with the gold outlook remaining decidedly bullish.
For the fourth quarter, Kinross reported revenue of $1.19B, good for +19.5% Y/Y increase while attributable margin per Au eq. oz. sold increased by 61% to $1,193 for compared to a margin of $741 during the previous year’s comparable period. Meanwhile, Q4 Adjusted operating cash flow increased by 36% to $527.6M, compared with $387.6M for 4Q19.
Q4 production fell 3.3% Y/Y to 624K gold equiv. oz., which the company expects to stay flat in 2021 so no nasty surprises expected here. Meanwhile, the miner says its FY 2021 spending budget will remain unchanged at $900M while annual AISC has been forecast to rise to $1,025 per gold equiv. oz. from $970/oz. in 2020.
With all factors remaining constant, Kinross should be able to realize high single-digit EPS expansion in the current year.
Bonus: Other Companies We Pick To Watch In The “Commodities Supercycle”
Teck Resources Limited (NYSE:TECK, TSX:TECK.B) is one of Canada’s largest and most diversified resource companies, with operations across the globe. While its primary mining and mineral development plays focus on steelmaking coal, copper and zinc, Teck also has a major stake in renewable energy ventures.
In a release on Teck’s website, the company explains why this investment is so important: “Flow batteries – such as the zinc-air battery developed by ZincNyx, with its flexible and low-cost scaling, long-term storage properties and the ability to separate the energy storage function from the power generation source – could provide a more efficient alternative for large-scale energy storage.”
Teck Resources fell to just $7 per share in March of last year due to the market chaos sparked by the COVID-19 pandemic. Despite this downturn, however, the company was able to rebound significantly, rising by nearly 185% to its current price of $20.
Turquoise Hill Resources Ltd. (NYSE:TRQ, TSX:TRQ) is another key player in Canada’s resource and mineral industry. Like Teck Resources, Turquoise Hill is a major producer of coal and zinc, two resources with distinctly different futures. While headlines are already touting the end of coal, zinc is a mineral that will play a key role in the future of energy for years and years to come.
In addition to its zinc operations, Turquoise Hill is also a significant producer of Uranium. Uranium is a key material in the production of nuclear energy, which many analysts are suggesting could be a major component in the global transition to cleaner energy. While the mineral has not seen significant price action in recent years, there are a number of new projects set to come online across the globe in the medium-term, which could be a boon to Turquoise Hill.
Though 2019 was a particularly rough year for Turquoise Hill, its downturn led to an opportunity for new shareholders to get in on the company at reduced prices. Since dropping from all time highs and settling at a low of just $5, Turquoise Hill has outperformed many of its peers, climbing by nearly 150% in 2020 alone. And it’s kept the momentum up this year, as well, climbing another 30% since January.
Lithium Americas Corp. (NYSE:LAC, TSX:LAC) is one of North America’s most important and successful pure-play lithium companies. With two world-class lithium projects in Argentina and Nevada, Lithium Americas is well-positioned to ride the wave of growing lithium demand in the years to come. It’s already raised nearly a billion dollars in equity and debt, showing that investors have a ton of interest in the company’s ambitious plans, and it will likely continue its promising growth and expansion for years to come.
It’s not ignoring the growing demand from investors for responsible and sustainable mining, either. In fact, one of its primary goals is to create a positive impact on society and the environment through its projects. This includes cleaner mining tech, strong workplace safety practices, a range of opportunities for employees, and strong relationships with local governments to ensure that not only are its employees being taken care of, but locals as well.
Lithium Americas’ efforts have paid off in the market, as well. While many companies across multiple industries struggled last year, Lithium Americas’ stock soared. In February last year, the company’s stock price was sitting at just $5.26, while today it is at $15, representing a 200% return for investors who bought in just a year ago.
Sociedad Química y Minera de Chile (NYSE:SQM) has seen its stock price nearly double from $30 in mid-February 2020 to its current price of $52. Sociedad Química y Minera, for example, signed in December a long-term supply deal with LG Energy Solution, which in turn supplies batteries to carmakers such as Tesla and GM. Under the deal, SQM will supply battery-grade lithium carbonate and lithium hydroxide to LG Energy Solution between 2021 and 2029.
The Chilean firm also announced a capital increase of up to US$1.1 billion, most of which will be used for lithium carbonate expansion in Chile, where SQM plans to more than double its production.
Sociedad Química y Minera sees the lithium industry growing at around 20 percent per year in the long term, supported by rising EV sales and emission reduction goals from China to the United States.
Sandstorm Gold Ltd (TSX:SSL) is a gold royalties company that follows in the footsteps of Wheaten Precious Metals, Franco-Nevada and the aforementioned Osisko Gold Royalties, giving investors a chance to cash in on this year’s gold boom while still maintaining some aversion to risk. Though it has not had quite as an impressive of a year as some of its pure-mining peers, it has still posted some moderate returns, especially considering the state of the wider resource market.
Like other gold and resource companies, Sandstorm took a hit when it saw a number of its assets temporarily halt operations to prevent the further spread of COVID-19, but it has since clawed back some of its losses, and is on track to see further gains as its operations return to normal. In addition to its upwards trajectory, it’s also sitting on a healthy balance sheet. Nolan Watson, President and CEO of Sandstorm, explained, “We’re excited at Sandstorm to have a strong balance sheet, a strong portfolio, and significant growth ahead. As at this moment, we are entirely debt-free. We have $52 million in the bank. These are good times for Sandstorm and I genuinely think they’ll keep getting better. “
Osisko Gold Royalties Ltd (TSX:OR) has been particularly busy this year, scrambling to make the most out of gold’s unprecedented rally. It’s made headlines with a string of deals, especially surrounding its Cariboo gold project in central British Columbia. In fact, in early October it announced multiple new high grade discoveries at the project managed by Barkerville Gold Mines, a wholly owned subsidiary of Osisko.
The success at the Cariboo project also highlights the company’s commitment to working with the community in a sustainable fashion. Just recently, it signed an agreement with the Lhtako Dene Nation to ensure the protection of the land and water near the drilling locations.
Chris Pharness, Barkerville Gold Mines VP Sustainability and External Relations of BGM noted, “It has been an honor and a privilege to be welcomed in the community and to hear the hopes and aspirations that LDN leadership and members have for their people. Our core belief as a company is based in reciprocity and the understanding that projects of this scale require mutually beneficial relationships, opportunities and outcomes to succeed. Our agreement is a key underpinning of that philosophy and an example of what respectful, honest dialogue can achieve.”
By. Ben Granger
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This publication contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this publication include that prices for gold will retain value in future as currently expected, or could rise based on political considerations; that Starr Peak can fulfill all its obligations to acquire its Quebec properties; that Starr Peak’s property can achieve drilling and mining success for gold; that historical geological information and estimations will prove to be accurate or at least very indicative; that high-grade targets exist; and that Starr Peak will be able to carry out its business plans, including timing for drilling and putting into place a second drill. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that politics don’t have nearly the strong effect on gold prices as expected; the Company may not complete all its announced mineral property purchases for various reasons; it may not be able to finance its intended drilling programs; Starr Peak may not raise sufficient funds to carry out its plans; geological interpretations and technological results based on current data that may change with more detailed information or testing; and despite promise, there may be no commercially viable minerals or ore on Starr Peak’s property. The forward-looking information contained herein is given as of the date hereof and we assume no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.
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