3 Gold Miners To Buy On Dips

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Gold miners have delivered impressive earnings growth, leading to attractive valuations following its recent decline. Some of the best opportunities include SSR Mining (SSRM), New Gold (NGD), and Agnico Eagle (AEM).

Investors anxious for upside in the precious metals complex have not gotten their wish as we head into Q3, with the Gold Miners Index (GDX) continuing to be very volatile, giving up its gains as easily after each sharp rally. This has made the trade quite frustrating for those overweight the sector this year, especially after watching the S&P-500 (SPY) continue to melt higher, unperturbed by the multi-year high inflation figures. The good news is that this continued turbulence in the sector has soured sentiment, forcing many funds to abandon the sector, and many investors to throw in the towel permanently. This exodus has left valuations across the space at very attractive levels for some names, with many miners enjoying 40% plus margins yet trading at 10% plus earnings yields. In this update we’ll look at a few miners that look like solid bets if this weakness persists:

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(Source: TC2000.com)

While cyclical sectors like the gold miners should never command earnings multiples anywhere near non-cyclical groups in the market given the lack of pricing power they have and the volatility in the commodities they sell. However, even if we assume more reduced earnings multiples of 12-15, most of the sector is now on sale, with many names at dirt-cheap valuations. A few of these names are SSR Mining at ~10x earnings, New Gold at less than 7x next year’s earnings estimates, and Agnico Eagle which would get interesting if its correction continues. Let’s take a closer look at these names below:

The first name on the list has had a busy year following a mega-merger in 2020 with Alacer Gold, leading to a more than 40% increase in annual gold (GLD) production. The new company now has four mines and operates out of Canada, Turkey, Argentina, and the United States, with its most exciting asset being the Copler Mine acquired from Alacer. Copler is a ~350,000-ounce producer with an industry-leading mine life of over 12 years, with a 15-year mine life based on resources. This asset has significantly improved SSRM’s cost profile, with the asset producing gold at all-in sustaining costs [AISC] of less than $800/oz relative to the company’s higher cost Nevada asset, Marigold.

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Disclosure: I am long GLD, KL

Disclaimer: Information is provided 'as-is' and solely for informational purposes, not for trading purposes or advice, and is delayed. To see all ...

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