Gold mining stocks continue to climb as global central banks flood the markets with cheap money via quantitative easing and zero interest rates. This continues the surge we saw in July with gold price reaching new all-time highs with no immediate consolidation. The million dollar question here is, is gold price reaching the top yet? Or more importantly, are gold mining stocks still worth buying after many of them have doubled in value?
Some of the major investment banks have a very bullish stance on gold. These include Goldman Sachs (GS Stock Report) and Bank Of America (BAC Stock Report). Gold had a strong year in 2019. And even the World Gold Council report says the outlook for 2020 remains bullish. “We expect that many of the global dynamics seeded over the past few years will remain generally supportive for gold in 2020.”
The yellow metal continues to hold up quite steadily near the all-time highs level. Many investors may believe that it’s not too late to add top mining stocks to their portfolio. Massive quantitative easing, high unemployment rate, poor economic conditions and the COVID-19 pandemic are the reasons to believe that gold prices may still have a potential upside. Therefore, investors interested in the hot commodity would be better off considering several compelling options in the market right now.
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First up the list, Newmont Corporation (NEM Stock Report) is a major mining company that might make it onto investors’ radar. The company reported solid second quarter results, generating $984million in adjusted EBITDA and $388 million of free cash flow. Both numbers increased substantially over the prior year quarter. Despite NEM stocks having had a good rally, analysts are still bullish with gold mining stocks. And most agree there’s still room for upside for both gold prices and gold mining stocks.
More money from investors who usually don’t focus on safe-haven like gold appears to be flocking into the sector. And among the gold miners, NEM stock appears to be one of the most attractive gold mining stocks to own. And that simply could be due to the company’s financial headroom. Low leverage and robust cash flows are the characteristics of a company with good management. Not to mention the company has 95.7 Moz in gold reserves.
This implies a reserve life of more than 10 years. Even if the company only proceeds with a small production growth moving forward, it will still be able to continue delivering robust cash flows and increasing dividends for the foreseeable future.
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Kirkland Lake Gold (KL Stock Report) reported solid second quarter results. The Q2 2020 results include strong growth in production, revenue, earnings and cash flow despite disruptions caused by the Company’s COVD-19 response.
Beyond just higher gold prices, Kirkland Lake Gold has the best balance sheet among gold mining stocks. The company ended the first quarter with $530.9 million in cash and cash equivalents with no debts on their balance sheet. It also recently doubled its quarterly payout to $0.125, and repurchased 9.7 million shares of stock totaling $329.8 million. And if you are the investor of this company, you will definitely love the management team. Everything the management team has done in recent years is to improve shareholder value. After all, who doesn’t love a company with a responsible management team that actually puts shareholders benefits on top of theirs.
In terms of the company’s operations, Kirkland’s three assets had an all-in sustaining cost of $776 per gold equivalent ounce (GEO) during the first quarter of the year. This was with higher costs associated with the acquisition of Detour Gold. While this cost may look high, Kirkland has an operating cash margin of above $1,000 per GEO. Of course, we are not exactly experts in gold mining metrics. But it seems shareholders can expect strong cash flows to be used for dividends, reinvestments, and perhaps additional acquisitions too.