Commodities & Metals

Even After Buffett's Gold Buy, 7 Top Miners Remain Undervalued

Paul Ausick

Published: August 28, 2020 7:46 am

Warren Buffett once summarized his view on investing in gold: “[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” Yet, according to its latest federal filing, Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) bought nearly 21 million shares in gold-mining company Barrick Gold Corp. (NYSE: GOLD).

There could be a number of reasons for the purchase, but one that stands out is the widening gap between miners’ realized prices for the yellow metal and their costs to produce the stuff. Miners, in general, have been working for years to reduce their all-in sustaining costs (AISC).

According to S&P Global Market Intelligence, the median AISC for a selected group of gold miners was $975 per ounce in the first quarter of this year. The first-quarter average was nearly 6% higher sequentially, likely due to costs related to the COVID-19 pandemic.

Since reaching a low of less than $1,100 per ounce in late 2015, gold bounced to an all-time high of near $2,100 an ounce earlier this month. The median average realized price for the 17 companies in S&P’s survey was $1,580 per ounce. If gold prices reach forecast levels of $2,500 or more per ounce, gold miners will be rolling in cash and investors will be claiming (rightly) that dividends need to increase. The mining companies may even ramp up exploration again.

Here we look at seven top gold-mining companies, along with their latest reserve totals, AISC and realized prices, and their potential upside to their current price targets. We also have added the company’s weight in the VanEck Vectors Gold Miners ETF (NYSEARCA: GDX) as of July 31 and the most recent rating/price target actions on the stock.

Newmont

Newmont Corp. (NYSE: NEM) reported a 53% year-over-year increase in its gold reserves to a total of 100.2 million ounces, primarily the result of its acquisition of Goldcorp. Newmont produced 1.5 million ounces of gold in the first quarter of this year.

Newmont’s AISC in the first quarter was $1,030 per ounce of gold, and its average realized price was $1,587 per ounce.

The stock closed at $64.76 on Thursday in a 52-week range of $33.00 to $72.22. The consensus price target on the stock is $76.65. The most recent price target change on Newmont’s stock came from UBS, which maintained its Neutral rating but raised its target from $58 to $71. As of July 31, the VanEck Vectors Gold Miners exchange-traded fund held 12.88% of its total $17.6 billion in assets in Newmont stock. At yesterday’s closing price, Newmont shares have a potential upside of $18.4% and trade at more than 16 times expected 2021 earnings.

Barrick Gold

Barrick listed proven and probable gold reserves of 71 million ounces at the end of last year. The company’s copper proved and probable copper reserves total 13.5 billion pounds. Gold production totaled 5.5 million ounces in 2019.

Barrick’s AISC in the first quarter was $954 per ounce of gold, and the company’s realized price was $1,589 per ounce.

The shares closed at $28.54 on Thursday, in a 52-week range of $12.65 to $31.22 and with a consensus price target of $32.91. The most recent rating action came from Fundamental Research, which raised its rating from Hold to Buy and raised its price target a cautious $0.13 to $31.71. Barrick is the second-most heavily weighted stock in the VanEck Vectors Gold Miners ETF, with a 12.76% share of the fund’s total assets. The stock’s potential upside is 15.3%, and shares trade at 22 times expected 2021 earnings.

AngloGold Ashanti

AngloGold Ashanti Ltd. (NYSE: AU) reported gold resources totaling 175.6 million ounces at the end of 2019. Copper resources totaled 1.72 million pounds. The company produced 3.3 million ounces of gold last year.

AngloGold’s AISC in the first quarter was $1,047 per ounce of gold, and its average realized price was $1,576 per ounce.

Shares closed at $28.53, in a 52-week range of $12.66 to $38.50, with a consensus price target of $36.48. The most recent rating action came from Fundamental Research, which reiterated its Buy rating and maintained its price target of $48.29. AngloGold is among the 10 most heavily weighted stocks in the VanEck Vectors Gold Miners ETF, with a 3.71% share of the fund’s total assets. At Thursday’s closing price, the potential upside on the shares is nearly 28%, and the stock trades at nearly eight times expected 2021 earnings.

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Kinross Gold Corp. (NYSE: KGC) reported proven and probable gold reserves totaling 24.3 million ounces at the end of 2019. It also said it has 55.7 million ounces of proven and probable silver reserves.

Kinross reported a first-quarter AISC of $982 per ounce of gold and an average realized price of $1,581 per ounce.

The stock closed at $8.46 on Thursday, in a 52-week range of $2.72 to $10.21. The consensus price target is $10.53. RBC recently reiterated its Buy rating and maintained its price target of $12. Kinross is among the 10 most heavily weighted stocks in the VanEck Vectors Gold Miners ETF, with a 3.34% share of the total assets. The potential upside on the stock is more than 24%, and the shares trade at more than 10 times expected 2021 earnings.

Sibanye Stillwater

Sibanye Stillwater Ltd. (NYSE: SBSW) reported gold reserves totaling 15.4 million ounces, along with 55.1 million ounces of platinum group metals (palladium, platinum and rhodium).

Sibanye’s AISC in the first quarter was $1,500 per ounce of gold, and its average realized price per ounce was $1,617.

Its stock closed at $11.88 on Thursday, in a 52-week range of $3.50 to $13.27 and with a consensus price target of $15.44. There have been no recent ratings or price target changes on the stock. Sibanye Stillwater is not included among the 15 heavily weighted stocks in the VanEck Vectors Gold Miners ETF. The potential upside based on yesterday’s closing price is nearly 30%, and the stock trades at about 17 times expected 2021 earnings.

Royal Gold

Not a gold miner, Royal Gold Inc. (NASDAQ: RGLD) acquires production streams and royalty interests, which it then resells. In the company’s March quarter (fiscal year third quarter), Royal Gold sold approximately 62,000 gold equivalent ounces, of which about 50,000 ounces was gold.

Royal’s average realized price for gold in the quarter was $1,569 per ounce. Cost of sales per gold equivalent ounce totaled $355 in the quarter.

The stock closed at $134.92, in a 52-week range of $59.78 to $147.64 and with a consensus price target of $143.71. RBC reiterated its Hold rating on the stock earlier this month, while Raymond James (reiterated Outperform) and TD Securities (reiterated Hold) raised their price targets. The new target at James is $153, up from $141. TD lifted its price target from $130 to $165. The stock is among the top 15 holdings of the VanEck Vectors Gold Miners ETF, representing about 2.74% of total assets. The stock’s potential upside is 6.5%, and shares trade at nearly 39 times expected 2021 earnings.

Wheaton Precious Metals

This company also acquires streams and royalty interests in gold and other precious metals. In 2019, Wheaton Precious Metals Corp. (NYSE: WPM) sold 389,086 ounces of gold and 628,447 gold equivalent ounces, including gold, silver and palladium.

Wheaton’s average realized price for gold in the first quarter was $1,300 per ounce.

Shares closed at $51.41 on Thursday. They have a 52-week range of $18.66 to $57.89 and a consensus price target of $55.33. Two analyst firms raised their price targets on Wheaton stock this month. TD Securities lifted its target from $55 to $64, and Raymond James has boosted its target from $51 to $58. Both firms have the equivalent of Buy ratings on the shares. The stock is the fourth-largest holding of the VanEck Vectors Gold Miners ETF, representing 5.81% of the fund’s assets. The potential upside on the stock is 7.6%, and shares trade at more than 38 times expected 2021 earnings.