Commodities & Metals

Despite the Big Move in Gold Prices, RBC Still Sees Upside to Top Stocks

Lee Jackson

Published: September 26, 2019 7:50 am

Last Updated: January 30, 2020 3:24 pm

Almost quietly, gold has consistently pushed higher. Even though naysayers constantly bemoan the fact that the precious metal offers no earnings potential, it does offer a safe store of value. Plus, it is a non-correlated investment that can hedge equity and even debt holdings.

The SPDR Gold Shares ETF (NYSE: GLD) is up over 13% over the past four months after being hammered for most of last year. Sure the massive fourth-quarter 2018 sell-off sparked some of the buying, but a cauldron of political issues at home, combined with trade conflicts and geopolitical incidents abroad, have kept investors nervous, and with good reason.

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A new RBC report makes the case, and rightfully so, that the top gold mining and royalty stocks have lagged the big move in the actual spot price of gold. The analysts see gold staying near $1,500 an ounce for the rest of this year and into 2020. The report noted this:

We expect gold prices to be driven by financial market sentiment, the outlook for the global economy and expected actions by the Fed. We expect a seasonal rally in the gold price in the December-January period as observed in each of the past 5 year-end periods. In addition, we believe a new long-term floor price for gold has been established at $1,400/oz given the magnitude that global real rates have declined, dovish global central bank outlooks and the policy direction of the U.S. administration regarding global trade and monetary policy.

We screened the RBC gold stock universe looking for those that are rated Outperform and still offer investors solid upside potential. We found three outstanding choices.

Agnico Eagle Mines

This is one of Wall Street’s most preferred U.S. gold producers. Agnico Eagle Mines Ltd. (NYSE: AEM) is a senior Canadian gold mining company that has produced precious metals since 1957. Its eight mines are located in Canada, Finland and Mexico, with exploration and development activities in each of these regions, as well as in the United States and Sweden.

The company and its shareholders have full exposure to gold prices due to its long-standing policy of no forward gold sales. Agnico Eagle has declared a cash dividend every year since 1983.

The company’s Meadowbank complex in Nunavutis is expected to achieve commercial production very soon, and the Amaruq project is expected to ramp up to full production by late 2019. Amaruq’s gold output is forecast to rise from 130,000 ounces in 2019 to 351,000 ounces in 2021, and it could account for 17% of Agnico Eagle’s total output.

Shareholders receive just a 0.86% dividend. The RBC price target is $74, and the Wall Street consensus target is $65.77. The stock closed Wednesday at $58.43.

B2Gold

This is a small cap gold stock for aggressive investors looking for sector exposure. B2Gold Corp. (NYSE: BTG) is a global, growth-oriented mid-tier gold producer whose primary assets include gold mines located in Nicaragua (La Libertad and El Limon), the Philippines (Masbate), Namibia (Otjikoto) and Mali (Fekola).

The company has stated that in 2019, based on current assumptions, consolidated gold production is forecast to be between 935,000 and 975,000 ounces, with cash operating costs projected to be between $520 and $560 per ounce, and all-in sustaining costs estimated to be $835 to $875 per ounce.

In addition, the company recently announced positive drill results from the Mamba zone, which is located within the Anaconda area, approximately 20 kilometers from the Fekola mine.

RBC has a price target posted at $6 Canadian, which is about $4.53 in U.S. currency. The posted consensus target is $3.50, and shares closed most recently at $3.48.

Wheaton Precious Metals

This precious metals company makes good sense for more conservative accounts looking to have exposure to the sector. Wheaton Precious Metals Corp. (NYSE: WPM) is a Canadian precious metals streaming company with approximately 60% of its revenues from the sale of silver and 40% from gold.

Under the terms of long-term contracts, the company purchases silver and gold from a variety of mines, including Goldcorp’s Penasquito mine in Mexico, Vale’s Salobo mine in Brazil, the Lundin Mining Zinkgruvan mine in Sweden, and Glencore’s Antamina and Yauliyacu mines in Peru, then sells the silver and gold into the open market.

Shareholders receive a 1.74% dividend. The $34 RBC price target compares with the $32.96 consensus target and the most recent close at $27.43.

Proper asset allocation should always include a single-digit percentage holding of precious metals like gold and silver. Not only do they hedge inflation over the long term, but they can really help if the market does go into correction or bear market mode, as they tend to trade inverse to markets.