These gold miners have an investment grade balance sheet and a quality asset base that will deliver healthy cash flows
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After testing investor patience for an extended period, gold has finally surged higher. Currently, the precious metal trades at all-time highs of $2,350 an ounce. The sentiments look bullish and it’s a good time to look at gold stocks for profits.
There are multiple reasons that have supported the rally in gold. The most important factor is the possibility of multiple rate cuts in the coming quarters. Expansionary monetary policies translate into a weaker dollar, and hard assets surge higher.
Further, global geopolitical tensions have contributed to the increased interest in gold as an asset class. It’s worth noting that central banks globally have continued to buy gold to diversify their reserves.
For gold mining companies, higher realized price will translate into EBITDA margin expansion and cash flow upside. This will provide ample headroom for dividend growth and aggressive capital investments. Therefore, let’s discuss three gold mining stocks to buy that are likely to surge from attractive valuations.
Barrick Gold (GOLD)
Barrick Gold (NYSE:GOLD) stock has recovered from lows of the year but remains sideways for year-to-date (YTD). This is a good opportunity to accumulate the undervalued precious metal stock before it surges higher. GOLD stock trades at an attractive forward price-earnings ratio of 18 and offers a dividend yield of 2.26%. Besides capital gains, I expect healthy upside in dividends in the coming quarters.
As of 2023, Barrick Gold reported proven and probable mineral reserves of 77 million ounces. Since the end of 2019, the company has delivered 140% reserve replacement. With quality gold assets comes clear revenue and cash flow visibility.
Another point to note is that Barrick Gold reported adjusted EBITDA and operating cash flow of $5.5 billion and $3.7 billion, respectively, for 2023. With higher realized prices, OCF and free cash flow will swell this year. Barrick Gold will be positioned to increase dividends, share repurchase and capital investments.
Newmont Corporation (NEM)
Newmont Corporation (NYSE:NEM) is another blue-chip gold stock to buy. In the last 12 months, NEM has declined by 21% and trades at a valuation gap. As gold surges, it’s a matter of time before the stock delivers robust returns.
As of 2023, Newmont reported a strong asset base. This included 96.1 million ounces in gold reserves, 30 billion pounds of copper reserves and nearly 600 million ounces of silver reserves. With the acquisition of Newcrest, the company added 47 million ounces of gold reserves last year. This comes at the right time with significant EBITDA margin expansion is likely in coming quarters.
From a financial perspective, Newmont has an investment grade balance sheet. This provides flexibility for aggressive investments, and the company is positioned for steady growth in gold production. For the current year, Newmont has guided for 6.9 million gold ounces of production. Also, as cash flows increase, healthy dividend growth is likely.
Kinross Gold (KGC)
Kinross Gold (NYSE:KGC) is among the relatively smaller gold mining companies that looks attractive. KGC stock has trended higher by 31% in the last 12 months but remains attractive at a forward price-earnings ratio of 18.5. Further, from a 2024 expected enterprise value to EBITDA perspective, KGC is undervalued as compared to Barrick Gold and Newmont Corporation.
An important point to note is that Kinross Gold has a strong financial profile. The company ended 2023 with a liquidity buffer of $1.9 billion. Further, it’s likely that operating cash flow for the year will be more than $2 billion.
In 2022, Kinross Gold had to sell Russian gold assets due to geopolitical factors. The company still has a sizeable gold reserve of 22 million ounces.
It’s likely that with high financial flexibility, the company pursues acquisition to boost the production outlook. Currently, Kinross Gold has guided for stable gold production through 2026. However, as gold trends higher, it’s likely that revenue growth will be robust coupled with free cash flow upside.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.