Worried about stocks? You're not alone. A U.S. jobs report last week that served no big surprises, combined with only modest stimulus measures from the European Central Bank, triggered a spike in gold prices.
While some investors took cues from the slow growth in U.S. jobs to buy the safe haven of gold, institutional buyers and hedge funds traded gold for short covering, with expectations of weak prices in the future.
Last week's rise in gold futures served as the perfect launch pad for a rally of gold mining companies. The increasing luster of gold as an investment reflects growing anxiety over 2016.
Among the big mining names, including Barrick Gold Corporation and Yamana Gold, two gold stocks are standing out. Both have outperformed physical gold so far in the fourth quarter.
But these two stocks aren't just piggybacking the gold futures price rise. They also boast strong fundamentals.NEM data by YCharts
Newmont Mining Corp (NEM)
Newmont's long-term operating and financial outlook, released on Wednesday, could not have come at a better time.
Constant improvement on costs
The company declared that it expects all-in sustaining (AISC) costs to improve from $900-$960 an ounce next year to $850-$950 an ounce in 2017, reflecting its successful efforts in reducing costs. Going forward, the mining company is confident of capping AISC below $1,000 an ounce through 2020.
Despite expected anemic production at three of its mines (Batu Hijau, Yanacocha, and Twin Creeks), three other mines (CC&V, Merian, and Long Canyon Phase 1) will offset the declines for the next five years. Such managed production will help the company increase production from 4.8 million-5.3 million ounces in 2016 to 5.2 million-5.7 million ounces by 2017 and achieve sustainable production of 4.5 million-5 million ounces annually through 2020.
Weak near-term won't shadow long-term prospects
With a promising outlook for the future, the lower EPS estimates by Citigroup from 15 cents to 9 cents only seem to be a minor speed break. For 2017, the bank has in fact boosted EPS to 40 cents from 27 cents, currently. Other analysts also see Newmont's bottom line expanding in the future -- only one out of 22 analysts suggest selling the stock. Newmont's popularity right now underscores the hidden investment dangers in this volatile market.
Spurt in output
However, not all the news was bad in the earnings report. For starters, production in the third quarter was up over 40% at 922,200 ounces from the same quarter a year ago. This production boost was aided by new mines turning operational.
Overall for 2015, the company is expected to deliver on its production guidance of 3.3 million-3.6 million gold equivalent ounces. To be sure, it remains to be seen what impact a mishap at Musselwhite Mine, where an employee died, and a mechanical issue at Pueblo Viejo, will have on this target.
Progress on cost-cutting
Goldcorp has managed to successfully cut its costs in recent months. Since the first quarter, all-in-sustaining-costs have fallen 4% and are expected to improve going forward as the company overcomes teething issues at new plants.
Positive Cash Flow
As its investments to launch Eleonore and Cerro Negro mines draw to a close, Goldcorp now has a lower need for capital. This has helped aid positive cash flows for Goldcorp, which generated positive free cash flow of $243 million in the third quarter compared to negative free cash flow of $355 million in the year-ago period. The management is confident of continuously achieving positive cash flows in the future.
With gold considerably far from its 2011 high of $1,980, there is plenty of headroom for a rise in prices. Uncertainty on interest rate movements, the looming U.S. elections looming and general weakness in economies such as Europe and China strengthen the case for a spike in gold. Any upswing in the yellow metal's price will definitely translate to the miners as well.
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