FN Media Group Presents Oilprice.com Market Commentary
LONDON, June 20, 2019 /PRNewswire/ -- What Wall Street knows as an incontrovertible truth is this: Fear is a bargain. And right now, there's so much fear floating around the market that gold is back on everyone's radar, with incredible bargains.
Gold is trading at over $1,342 an ounce right now. So imagine buying it for $2-$3 an ounce instead. When Wall Street goes bargain hunting, it's looking for deals like this. Included in today's commentary are: Barrick Gold Corp. (NYSE:GOLD) Wheaton Precious Metals Corp. (NYSE:WPM) Teck Resources (NYSE:TECK) Yamana Gold (NYSE:AUY) Kinross Gold Corporation (NYSE:KGC)
One way it does so is by targeting junior miners with major upside, setting short-term price targets that make these undervalued global gold assets ground zero for investors who are fleeing the next potential economic meltdown. Among the well-known Wall Street bargain shoppers are Cantor Fitzgerald and GMP Research, two authorities on the street that closely follow the world's breakthrough gold developments.
Recently, both have spotted an almost unrivaled gold bargain: Euro Sun Mining - owner of the biggest in-development gold mine in Europe. Cantor Fitzgerald's short-term price target of $2.10, implies an upside of 406 percent. GMP Research has given it a $3.00 price target, implying a potential 641 percent increase.
That's because when this gold gets out of the ground against a geopolitical backdrop of a massively destructive trade war and the dangerous flirtation of conflict with Iran, it may likely be the most valuable safe haven asset in the world.
This is where fear becomes opportunity
Fear has overtaken greed, and investors are running for safe havens.
A year ago, greed ruled the day. Now, the market's running on fumes and seems poised for an economic meltdown, powered by a trade war that knows no bounds.
- The current S&P 500 P/E valuation of 21.47 is well above the historical median of 14.75 and the mean of 15.75, potentially laying the groundwork for a stock market correction.
- The labor market, which has remained red-hot for a couple of years, has recently gone cold. Only 75,000 jobs were created in May, and annual wages saw the slowest pace of growth in 8 months, while jobless claims unexpectedly spiked.
- The U.S. yield curve has already flipped. An inverted yield curve—one showing younger treasury bonds yielding more interest than older ones - is widely regarded as an ominous bellwether for an economic recession.
And those are just the side effects: We haven't even felt the full repercussions of the U.S.-China trade war because the latest 25-percent hike on imports from China does not apply to goods already in transit.
With no deal in sight, the 4-6 week window will close in June - and all hell could break loose. The big question then, is how best to profit from this looming crisis.
The answer? Discount gold.
How Are Investors Buying Gold At A Discount?
Gold is and always has been the ultimate safe haven. After decades of experimentation with gold alternatives, gold's hegemony as the go-to store of value remains unchallenged. Which explains why the world's central banks have begun stockpiling the yellow metal at the fastest rate in six years.
As billionaire investor Paul Tudor recently told Bloomberg, gold has everything going for it right now and could zoom to $1,700 per ounce in a matter of months. But the real money isn't in buying the bullion itself.
It's in getting exposure to gold at a discount. A technique for buying ounces of gold at cents to the dollar.
Gold mining is a tough business and getting progressively harder with the easy-hanging fruit in open pit mines now mostly gone. For every ounce a Barrick pulls out of the ground - they typically have 11-12 ounces in undeveloped projects. A large operator might have 60-80 million ounces of gold in proven reserves.
Investors can generate phenomenal returns by owning shares in A+ level companies, with A+ level deposits that aren't yet in production. Instead of paying $1,350 per ounce from your gold broker. Savvy investors can pay $100, $50, $25 even $3 per ounce. When gold inevitably skyrockets – they can benefit from extraordinary leverage.
Take Euro Sun Mining for example, a company with over $10 billion worth of gold equivalent on its books. This company's current market cap is $30 million – valuing each ounce of gold at just $3.
During the last gold boom, investors had plenty of success with this strategy as small miners enjoyed outstanding returns – Back in 2016, when gold prices soared 26% in 6 months, Mid cap miners such as Endeavour Mining Corp gained 196% in 6 months, while its Ontario based competitor IAMGold gained 256% in that same timeframe, but some of the real winners were the shareholders of small cap miners.
Argonault Gold's share price jumped 298% in 6 months, and its peer Great Panther Mining saw its share price even jump by a whopping 340% in no more than 4 months after it reported a 19% in gold production.
Admittedly, a strong dollar can annihilate junior mining stocks. That's what's happened over the past five years, and now some of these little explorers are trading at a tiny fraction of their fair value estimates based on their existing gold reserves.
At this juncture, undervalued junior mining stocks provide the best bang for the buck, with Euro Sun Mining in particular looking incredibly cheap. Based at the company's new mine in Rovina, Romania, Euro Sun has 400 million tons of ore, with billions of dollars in gold equivalent and copper locked inside.
There's an art to thriving in a market downturn
Gold stocks have been beaten down for far too long, and now they are just like a high-tension spring - ready to explode at the slightest nudge.
Gold has everything going for it right now, with geopolitical and macroeconomic trends aligning in its favor. An investor carefully rebalancing their portfolio to include cheap gold stocks can not only survive but thrive in the coming storm.
2019 is shaping up to be a banner year for gold, and the following companies have all locked in their bets:
Barrick Gold Corp. (NYSE:GOLD) and Goldcorp Inc. - All eyes are on the billion-dollar partnership these two giants are forming in Chile's gold belt. Goldcorp is putting up $1 billion to get in on this deal as miners scramble for new sources of growth. This joint venture will see the two giant miners operate three properties in Chile's Maricunga region, and these will be major catalysts for both.
Newmont Mining Corp - Founded over 100 years ago, Newmont Mining Corporation is one of the leading mining companies in the world. The company holds assets in Peru, Australia, Ghana, Indonesia, Mexico, and around the United States. Primarily focusing on gold and copper, Newmont has steadily carved out a name for itself among those in the industry. In Q1 2017 alone, the company secured over 1.2M ounces of gold. Definitely noteworthy for investors.
Wheaton Precious Metals Corp. (NYSE:WPM) Wheaton is a company with its hands in operations all around the world. As one of the largest 'streaming' companies on the planet, Wheaton has agreements with 19 operating mines and 9 projects still in development. Its unique business model allows it to leverage price increases in the precious metals sector, as well as provide a quality dividend yield for its investors.
Recently, Wheaton sealed a deal with Hudbay Minerals Inc. relating to its Rosemont project. For an initial payment of $230 million, Wheaton is entited to 100 percent of payable gold and silver at a price of $450 per ounce and $3.90 per ounce respectively.
Randy Smallwood, Wheaton's President and Chief Executive Officer explained, "With their most recent successful construction of the Constancia mine in Peru, the Hudbay team has proven themselves to be strong and responsible mine developers, and we are excited about the same team moving this project into production. Rosemont is an ideal fit for Wheaton's portfolio of high-quality assets, and when it is in production, should add well over fifty thousand gold equivalent ounces to our already growing production profile."
Teck Resources (NYSE:TECK) Teck could be one of the best-diversified miners out there, with a broad portfolio of Copper, Zinc, Energy, Gold, Silver and Molybdenum assets. Its free cash flow and a lower volatility outlook for base metals in combination with a potential trade war breakthrough could send the stock higher in H2 of this year.
Teck's share price stabilized last year and many investment banks now see the stock as undervalued. Low prices for Canadian crude and disappointing base metals prices weighed on Q4 earnings.
Despite its struggles, however, Teck Resources recently received a favorable investment rating from Fitch and Moody's, and will likely benefit from its upgraded score. "Having investment grade ratings is very important to us and confirms the strong financial position of the company," said Don Lindsay, President and CEO. "We are very pleased to receive this second credit rating upgrade."
Yamana Gold (NYSE:AUY) Yamana, has recently completed its Cerro Moro project in Argentina, giving its investors something major to look out for. The company plans to ramp up its gold production by 20% through 2019 and its silver production by a whopping 200%. Investors can expect a serious increase in free cash flow if precious metal prices remain stable.
Recently, Yamana signed an agreement with Glencore and Goldcorp to develop and operate another Argentinian project, the Agua Rica. Initial analysis suggests the potential for a mine life in excess of 25 years at average annual production of approximately 236,000 tonnes (520 million pounds) of copper-equivalent metal, including the contributions of gold, molybdenum, and silver, for the first 10 years of operation.
The agreement is a major step forward for the Agua Rica region, and all of the miners working on it.
Kinross Gold Corporation (NYSE:KGC) Kinross Gold Corporation is relatively new on the scene, founded in the early 90s, but it certainly isn't lacking drive or experience. In 2015, the company received the highest ranking for of any Canadian miner in Maclean's magazine's annual assessment of socially responsible companies.
While Kinross posted a significant loss in the fourth quarter of 2018, the company is making strong moves to turn around its earnings, including the hiring of a new CFO, Andrea S. Freeborough.
"Andrea's successful track record at Kinross and throughout her career, including accounting, international finance, M&A, and deep management experience, will be an excellent addition to our leadership team," said Mr. Rollinson. "We have great talent at Kinross and succession planning is a key aspect of retaining that talent for the future success of our Company."
By. Ian Jenkins
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