Thanks Alberto, quite a resource on gold miners. I think there is one gold miner in West Australia that would meet your criteria as a buy, and it is bigger than some on your list. It is Beacon BCN.ax I think it is cheapest gold miner in world and it has great upside after getting a new property with high grade copper/gold outcrops. EV/EBITDA of 2.3 I wrote them up here: https://ceo.ca/@geodan/the-best-gold-miner-value-stock-in-the-world-looks-like-beacon Cheers
I think it's quite clear that African producers and projects are by and large much cheaper and higher quality than their North American and Australian peers. Not only are they trading at steep discounts to NPV and/or low EV/EBITDA, they also sport some of the biggest reserves. Certain other jurisdictions like Guyana also have similarly good juxtaposition between price and value, and quality (of note is that Guyana's gold mines are essentially located in the same greenstones as West Africa's gold mines, they just got separated by tectonic plate movements over time). By disqualifying those jurisdictions you're leaving a lot of money on the table in my opinion, a mistake many investors make. Of course, everybody has their own risk appetite so what seems like a nobrainer deal to me might seem like an unacceptably high risk to you, but then again that's what makes a market -- one investor's "sell" is another investor's "buy".
Also I should say that disqualifying >$1B market cap companies is a major miscalculation as some of the development as well as producing stage companies are trading at quite a good price relative to value even despite their high market capitalization. Don't forget that Great Bear, Yamana, Newcrest, Turquoise, Teck's coal business and very recently Anglo American have been billion dollar takeover candidates in recent years. High market cap does not mean that there are no good buying opportunities, so I recommend checking out the bigger companies as well!
“ By disqualifying those jurisdictions you're leaving a lot of money on the table in my opinion, a mistake many investors make. ” I have made most of my money in Niger and Namibia, Im well aware of the opportunities in Africa. But if I can buy gold stocks in the US or Australia at a 90%+ discount to NPV I see no point in owning anything in Africa.
“ Also I should say that disqualifying >$1B market cap companies is a major miscalculation as some of the development as well as producing stage companies are trading at quite a good price relative to value even despite their high market capitalization. ”
I talked about this in the report, if I had found something interesting in that range I would have put it in the report. The only decent ones are De Grey and Bellevue and even then the valuation isn’t attractive. The larger miners are running out of reserves. But Im open minded, any stock tips?
“ Don't forget that Great Bear, Yamana, Newcrest, Turquoise, Teck's coal business and very recently Anglo American”
I have said many times in this blog that if a stock doesn’t have a 5x potential Im not going to buy. Of the stocks you mentioned the only one that performed like that was Great Bear, and the people that bought it and made 5x didn’t buy it at $1B+ market did they? Great Bear was an explorer, not a producer nor a developer.
Hope that helps.
Thank you for the comment, I always appreciate constructive criticism.
"But if I can buy gold stocks in the US or Australia at a 90%+ discount to NPV I see no point in owning anything in Africa." -- Not all NPVs are created equal. By that I mean that not all economic studies are made equal. I am especially leery of Scoping Studies or PEAs as they can be quite liberal with their assumptions, PFS and FS numbers are much more trustworthy. Similarly if a given economic study is two years old it's probably outdated on the cost front in these inflationary times. I find many capex & opex estimates hopeful at best, deceptive at worst, and a 5% discount rate in this interest rate environment is mostly a poor joke I've heard too many times. Another point about large discounts to NPV is that sometimes they are not justified (= company is probably cheap for no good reason), and sometimes they are justified (= the company is cheap because it doesn't deserve a high premium). Most projects simply will never get built despite all manner of exploration work, metallurgical studies, PEAs and Feasibility Studies being generated for them. Have you ever heard of a negative economic study? Of course not! Granted I am no veteran myself, so I'm left with my mediocre wits on these types of issues, so I tend to focus on companies with simple and easy to execute projects, or excellent management teams that I know I can trust. In any case: I find that much research, and due diligence needs to be done and caution must be exercised when considering NPV premiums in the market.
Now I'm not trying to say either of us is in the wrong or in the right with our views of company valuations, but I personally think the better opportunities tend to be in jurisdictions often considered scary. I don't know enough to comment about the companies you mentioned that are trading at a >90% discount to NPV, but I hope you have done sufficient due diligence so that you'll end up being right with those picks.
I do have some tips with regard to the >$1B market cap companies. I really like Artemis, B2Gold, Endeavour Mining and Agnico Eagle to name a few. I own all of them so you'll find me biased. I also like Alamos Gold and Lundin Gold but I don't own them right now. Barrick and Anglogold also look pretty good here. I don't think any of the above are tight on reserves, and I think they all offer compelling value in their own ways.
If you're only looking for a five-bagger then I'll have to apologize. I wasn't aware of this prerequisite. You see, for me getting a double is usually sufficient, I like selling half after a double and if I see more undiscovered price upside I'll let it run. If I was only looking for 5x or more I'd either take too much risk or I wouldn't find a lot of companies to invest in!
"(= the company is cheap because it doesn't deserve a high premium)"
I 100% agree, the world is filled with stocks that are cheap for a reason.
"I find many capex & opex estimates hopeful at best, deceptive at worst, and a 5% discount rate in this interest rate environment is mostly a poor joke I've heard too many times"
Yes, agreed, its an insult to our intellect. That´s why I always try to use 10% discount. Hence my comment about Liberty gold "Even if they underdeliver on Blackpine, the stock is too cheap"
"If I was only looking for 5x or more I'd either take too much risk or I wouldn't find a lot of companies to invest in!"
Its not about high risk investments. My mantra is: "when I invest Im flipping a coin, if its heads I win 5x, if its tails I lose little or nothing." Risk and reward are not correlated, something mathematicians still can´t comprehend, but something any value investor should (in my opinion) understand.
I have noted your stock picks in case I do a report on large miners. All I can say from your picks is that Barrick is way better than Newmont, simply because they are the ones operating the Nevada Gold mine complex.
I love the conversation we are having. Im glad to have you as a subscriber.
I like your philosophy! You are absolutely right, sometimes you can find low risk and high returns in one place at the right time. Those are the really magical opportunities that sometimes grace me with their presence.
It's been a long time since I looked at Liberty but I guess I'll have to look at them again, I see they're much cheaper today than back when I last reviewed the company. I like that it's an oxide project but the grade is a bit low if memory serves me right. Still, if they've advanced a good deal and improved the project while the market has sold the stock off there could be a nice opportunity.
On Newmont vs Barrick I would agree with you, I think Barrick is also in general much better managed and much more selective on which assets it holds. Newmont needs to, and is finally in the process of, getting rid of much of the subpar assets in its portfolio.
By the way, the best value gold producer I know of right now is Allied Gold which you mentioned. Once Kurmuk comes online in 2026, at current market price they would be trading at a 1x cash flow multiple assuming gold price and AISC remain stable (AISC is actually expected to go down as the sustaining capital costs go down). They're also currently trading at about 15% discount to total NPV if I'm not mistaken. Country risk and management compensation is a minor concern to me when I can get a 400kozpa, and in two years a 600kozpa producer at prices like these!
I'm also very much enjoying our convo, and I forgot to thank you for writing this very thoughtful article. I'm most interested in AMRK so I'll have to familiarize myself with that company. Thank you Alberto!
Thanks for the great article. I've looked at ARMK and their earnings history puts me off. They seem to have really spiked in 2020 and 2021 and since then their earnings have been going down. Do you know what the reason for this were? Just looking at the years I would say Covid created an increased demand for gold and since then it's been going down potentially to where it was before.
It wasn’t Covid necessarily. They have been very active taking over other brokers, which I like. Earnings are down due to long term customers turning from buyers to sellers. The long term trend of earnings are great though. And demand for physical gold is spiking as you can see from the record high physical delivery of gold futures
Hey @Alberto, thanks for your work! Would you mind listing the companies you excluded on the basis of the market cap being > $1bn (I note the nine in your table, but there are others)? Have you rated these… there could be some value in these larger companies?
Hola Alberto, comentas que el 4 de abril escribiste un informe sobre el oro y su escasez. Donde podria leerlo? ya que en el substack no lo veo. Por cierto, gran trabajo sobre las mineras de oro, la verdad que es un currazo. Un saludo
will look into MM8, however the ASX is ripe with endlessly capital raising gold explorers - so I'm not expecting great things.
As an ASX investor, there are two gold companies on the ASX that have delivered more FCF than spent on CAPEX.
1. Silverlake Resoureces (merged with ASX:RED in the past month).
2. Perseus Resources (ASX:PRU). (I hold).
I would suggest that Perseus is the best gold company on the ASX. 10years+ reserves, ~1b AUD in cash, Trailing ~720m AUD in EBITDA. Mcap $3.16B AUD. Zero debt. New projects coming online as others are tapering off.
It doesn't have that 'torque' return you might be after, but you can see their sustained operational success and cash generation in any of their reports. The cost - their operations are in Africa. However, watch any interview with their Chairman and how he values "Social" in ESG as being key to their success in West Africa.
Just remember, the key to buying miners is always to buy countercyclically - which is why you couldn't find any producers to meet your criteria.
Good article. aren't you into silver or silver miners? Some prefer silver to gold (due to its use as an industrial material, historically high gold to silver ratio, etc...). Speaking of Endeavour Silver, it has plummeted nearly 40% in just one month. I'm keeping an eye on it to see if this might be a good opportunity.
This is a real deep study, I´m really impressed !!!
Congrats !!!
Thanks Alberto, quite a resource on gold miners. I think there is one gold miner in West Australia that would meet your criteria as a buy, and it is bigger than some on your list. It is Beacon BCN.ax I think it is cheapest gold miner in world and it has great upside after getting a new property with high grade copper/gold outcrops. EV/EBITDA of 2.3 I wrote them up here: https://ceo.ca/@geodan/the-best-gold-miner-value-stock-in-the-world-looks-like-beacon Cheers
Thank you so much. I will check on them as soon as Im back home
I think it's quite clear that African producers and projects are by and large much cheaper and higher quality than their North American and Australian peers. Not only are they trading at steep discounts to NPV and/or low EV/EBITDA, they also sport some of the biggest reserves. Certain other jurisdictions like Guyana also have similarly good juxtaposition between price and value, and quality (of note is that Guyana's gold mines are essentially located in the same greenstones as West Africa's gold mines, they just got separated by tectonic plate movements over time). By disqualifying those jurisdictions you're leaving a lot of money on the table in my opinion, a mistake many investors make. Of course, everybody has their own risk appetite so what seems like a nobrainer deal to me might seem like an unacceptably high risk to you, but then again that's what makes a market -- one investor's "sell" is another investor's "buy".
Also I should say that disqualifying >$1B market cap companies is a major miscalculation as some of the development as well as producing stage companies are trading at quite a good price relative to value even despite their high market capitalization. Don't forget that Great Bear, Yamana, Newcrest, Turquoise, Teck's coal business and very recently Anglo American have been billion dollar takeover candidates in recent years. High market cap does not mean that there are no good buying opportunities, so I recommend checking out the bigger companies as well!
“ By disqualifying those jurisdictions you're leaving a lot of money on the table in my opinion, a mistake many investors make. ” I have made most of my money in Niger and Namibia, Im well aware of the opportunities in Africa. But if I can buy gold stocks in the US or Australia at a 90%+ discount to NPV I see no point in owning anything in Africa.
“ Also I should say that disqualifying >$1B market cap companies is a major miscalculation as some of the development as well as producing stage companies are trading at quite a good price relative to value even despite their high market capitalization. ”
I talked about this in the report, if I had found something interesting in that range I would have put it in the report. The only decent ones are De Grey and Bellevue and even then the valuation isn’t attractive. The larger miners are running out of reserves. But Im open minded, any stock tips?
“ Don't forget that Great Bear, Yamana, Newcrest, Turquoise, Teck's coal business and very recently Anglo American”
I have said many times in this blog that if a stock doesn’t have a 5x potential Im not going to buy. Of the stocks you mentioned the only one that performed like that was Great Bear, and the people that bought it and made 5x didn’t buy it at $1B+ market did they? Great Bear was an explorer, not a producer nor a developer.
Hope that helps.
Thank you for the comment, I always appreciate constructive criticism.
"But if I can buy gold stocks in the US or Australia at a 90%+ discount to NPV I see no point in owning anything in Africa." -- Not all NPVs are created equal. By that I mean that not all economic studies are made equal. I am especially leery of Scoping Studies or PEAs as they can be quite liberal with their assumptions, PFS and FS numbers are much more trustworthy. Similarly if a given economic study is two years old it's probably outdated on the cost front in these inflationary times. I find many capex & opex estimates hopeful at best, deceptive at worst, and a 5% discount rate in this interest rate environment is mostly a poor joke I've heard too many times. Another point about large discounts to NPV is that sometimes they are not justified (= company is probably cheap for no good reason), and sometimes they are justified (= the company is cheap because it doesn't deserve a high premium). Most projects simply will never get built despite all manner of exploration work, metallurgical studies, PEAs and Feasibility Studies being generated for them. Have you ever heard of a negative economic study? Of course not! Granted I am no veteran myself, so I'm left with my mediocre wits on these types of issues, so I tend to focus on companies with simple and easy to execute projects, or excellent management teams that I know I can trust. In any case: I find that much research, and due diligence needs to be done and caution must be exercised when considering NPV premiums in the market.
Now I'm not trying to say either of us is in the wrong or in the right with our views of company valuations, but I personally think the better opportunities tend to be in jurisdictions often considered scary. I don't know enough to comment about the companies you mentioned that are trading at a >90% discount to NPV, but I hope you have done sufficient due diligence so that you'll end up being right with those picks.
I do have some tips with regard to the >$1B market cap companies. I really like Artemis, B2Gold, Endeavour Mining and Agnico Eagle to name a few. I own all of them so you'll find me biased. I also like Alamos Gold and Lundin Gold but I don't own them right now. Barrick and Anglogold also look pretty good here. I don't think any of the above are tight on reserves, and I think they all offer compelling value in their own ways.
If you're only looking for a five-bagger then I'll have to apologize. I wasn't aware of this prerequisite. You see, for me getting a double is usually sufficient, I like selling half after a double and if I see more undiscovered price upside I'll let it run. If I was only looking for 5x or more I'd either take too much risk or I wouldn't find a lot of companies to invest in!
"(= the company is cheap because it doesn't deserve a high premium)"
I 100% agree, the world is filled with stocks that are cheap for a reason.
"I find many capex & opex estimates hopeful at best, deceptive at worst, and a 5% discount rate in this interest rate environment is mostly a poor joke I've heard too many times"
Yes, agreed, its an insult to our intellect. That´s why I always try to use 10% discount. Hence my comment about Liberty gold "Even if they underdeliver on Blackpine, the stock is too cheap"
"If I was only looking for 5x or more I'd either take too much risk or I wouldn't find a lot of companies to invest in!"
Its not about high risk investments. My mantra is: "when I invest Im flipping a coin, if its heads I win 5x, if its tails I lose little or nothing." Risk and reward are not correlated, something mathematicians still can´t comprehend, but something any value investor should (in my opinion) understand.
I have noted your stock picks in case I do a report on large miners. All I can say from your picks is that Barrick is way better than Newmont, simply because they are the ones operating the Nevada Gold mine complex.
I love the conversation we are having. Im glad to have you as a subscriber.
I like your philosophy! You are absolutely right, sometimes you can find low risk and high returns in one place at the right time. Those are the really magical opportunities that sometimes grace me with their presence.
It's been a long time since I looked at Liberty but I guess I'll have to look at them again, I see they're much cheaper today than back when I last reviewed the company. I like that it's an oxide project but the grade is a bit low if memory serves me right. Still, if they've advanced a good deal and improved the project while the market has sold the stock off there could be a nice opportunity.
On Newmont vs Barrick I would agree with you, I think Barrick is also in general much better managed and much more selective on which assets it holds. Newmont needs to, and is finally in the process of, getting rid of much of the subpar assets in its portfolio.
By the way, the best value gold producer I know of right now is Allied Gold which you mentioned. Once Kurmuk comes online in 2026, at current market price they would be trading at a 1x cash flow multiple assuming gold price and AISC remain stable (AISC is actually expected to go down as the sustaining capital costs go down). They're also currently trading at about 15% discount to total NPV if I'm not mistaken. Country risk and management compensation is a minor concern to me when I can get a 400kozpa, and in two years a 600kozpa producer at prices like these!
I'm also very much enjoying our convo, and I forgot to thank you for writing this very thoughtful article. I'm most interested in AMRK so I'll have to familiarize myself with that company. Thank you Alberto!
Correction, Allied is trading at about 15% PREMIUM to NPV, or 0.15x NPV.
Yes Allied has great assets. Although their exposure to Mali is somewhat of a concern.
Regarding Barrick, what do you think of their investment in Pakistan? Seems like a risky bet
Thanks for the great article. I've looked at ARMK and their earnings history puts me off. They seem to have really spiked in 2020 and 2021 and since then their earnings have been going down. Do you know what the reason for this were? Just looking at the years I would say Covid created an increased demand for gold and since then it's been going down potentially to where it was before.
It wasn’t Covid necessarily. They have been very active taking over other brokers, which I like. Earnings are down due to long term customers turning from buyers to sellers. The long term trend of earnings are great though. And demand for physical gold is spiking as you can see from the record high physical delivery of gold futures
Thanks for the reply
Hey @Alberto, thanks for your work! Would you mind listing the companies you excluded on the basis of the market cap being > $1bn (I note the nine in your table, but there are others)? Have you rated these… there could be some value in these larger companies?
I haven´t had a look at them. De Grey Mining looks interesting though
You’re on fire!
Hola Alberto, comentas que el 4 de abril escribiste un informe sobre el oro y su escasez. Donde podria leerlo? ya que en el substack no lo veo. Por cierto, gran trabajo sobre las mineras de oro, la verdad que es un currazo. Un saludo
Muchas gracias Alberto. Te he puesto como comentario el enlace al artículo, un abrazo
https://open.substack.com/pub/albertoag/p/gold-the-return-to-a-2000-year-old?r=3hhq06&utm_campaign=post&utm_medium=web&showWelcomeOnShare=true
Superb analysis! Thank you for sharing!
Thank you!
Great report. Thanks for sharing, Alberto.
Thank you for the comment Luc!
ERO Copper - has been down quite a bit off late . Any comments considering it is your biggest Copper holding ?
Im buying more
Muchísimas Gracias Alberto! Vaya currazo!
No hay de que.
Gracias Adrián por el cumplido.
Un abrazo
Millones de gracias Alberto!
Gracias a ti Andrés. Un abrazo
Thanks for the article Alberto. I
will look into MM8, however the ASX is ripe with endlessly capital raising gold explorers - so I'm not expecting great things.
As an ASX investor, there are two gold companies on the ASX that have delivered more FCF than spent on CAPEX.
1. Silverlake Resoureces (merged with ASX:RED in the past month).
2. Perseus Resources (ASX:PRU). (I hold).
I would suggest that Perseus is the best gold company on the ASX. 10years+ reserves, ~1b AUD in cash, Trailing ~720m AUD in EBITDA. Mcap $3.16B AUD. Zero debt. New projects coming online as others are tapering off.
It doesn't have that 'torque' return you might be after, but you can see their sustained operational success and cash generation in any of their reports. The cost - their operations are in Africa. However, watch any interview with their Chairman and how he values "Social" in ESG as being key to their success in West Africa.
Just remember, the key to buying miners is always to buy countercyclically - which is why you couldn't find any producers to meet your criteria.
Cream
Absolutely great!
great deep dive, thank you
Good article. aren't you into silver or silver miners? Some prefer silver to gold (due to its use as an industrial material, historically high gold to silver ratio, etc...). Speaking of Endeavour Silver, it has plummeted nearly 40% in just one month. I'm keeping an eye on it to see if this might be a good opportunity.