Generally, gold prices and inflation tend to have a positive correlation. In the simplest terms, this means that as inflation rises, gold prices also typically rise, as investors seek out the precious metal as a currency hedge. However, with inflation showing signs of cooling down right alongside the jobs market, the chances of a rate cut by the Federal Reserve have climbed. So, in an environment where inflation is cooling, does the yellow metal still perform well?
The short answer is yes, as evidenced by this week's new record closing high. Gold as an asset class performs well in low interest rate regimes, further enhancing its safe-haven status. Plus, heavy central bank buying and ongoing geopolitical tensions continue to bolster the bull case for gold.
December gold futures (GCZ24), the most active contract, are up 18% on a YTD basis, and global gold ETFs generated their highest monthly inflows in July, at $3.7 billion, since April 2022. With imminent Fed rate cuts expected to provide another positive driver for gold, here are three dividend-paying stocks from the mining industry that could benefit from higher prices.
#1. Newmont Mining
Established in 1921, Newmont Mining (NEM) is one of the world's largest gold producers, with operations in North America, South America, Africa, and Australia. The company also produces silver (SIU24) and other byproducts. Newmont currently commands a market cap of $59.3 billion.
NEM stock is up an impressive 25.3% on a YTD basis, and offers a dividend yield of 1.94%. That's based on its quarterly dividend of $0.25 per share.
Newmont's results for the second quarter came in ahead of Wall Street's estimates on both the revenue and earnings front. Sales rose by 64.1% from the previous year to $4.4 billion on the back of a 19.4% yearly bump in average realized gold prices to $2,347/oz. Annual increases in average realized prices were also reported in copper (HGU24), zinc, lead, and silver as well. Q2 EPS jumped by 118.2% to $0.72, easily outpacing the consensus estimate of $0.62.
Gold production increased to 1.61 million tonnes from 1.24 million tonnes, with cash flow from operations rising to $1.66 billion from a mere $763 million in the year-ago period. Overall, the company closed the quarter with a cash balance of $2.6 billion, reflecting solid liquidity.
Notably, Newmont sold off some of its non-core assets, as it agreed to sell its stream facility and offtake agreement on the Fruta del Norte Mine for $330 million. It also received about $197 million in Batu Hijau contingent payments, with a deal to sell 100% of its deferred payment rights related to this Indonesian asset for $153 million in cash. This streamlining of operations reflects the company's focus on core operations, while also raising cash to be used for capital deployment or reducing its debt burden.
Recently, analysts at Scotiabank upgraded NEM stock to “Sector Outperform” from “Sector Perform,” with a price target of $59. Overall, the analyst community seems to be in sync with this bullish view, giving NEM an average rating of “Moderate Buy.” Out of 17 analysts covering the stock, 10 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and six have a “Hold” rating.
NEM is trading nearly flat with its mean price target of $51.35, but its Street-high target of $59 is a premium of 13.7% from here.
#2. Agnico-Eagle Mines
Founded in 1957, Agnico-Eagle (AEM) is a leading gold producer with operations in Canada, Mexico, Finland, and Sweden. The company also produces silver as a byproduct. Its market cap currently stands at $41.0 billion.
AEM stock has had a stellar year in 2024 so far, rallying 50.8% on a YTD basis. The miner offers a dividend yield of 1.95%, paid quarterly at a rate of $0.40 per share.
In Q2, AEM beat on both revenue and earnings. Revenues were up by 20.9% from the previous year to $2.08 billion, aided by the 18.6% yearly rise in average realized gold prices to $2,342/ounce. Additionally, adjusted EPS shot up by 72.6% to $1.07, coming in ahead of the consensus estimate of $0.92. Notably, AEM's EPS have topped expectations in each of the past five quarters.
The company reported an increase in both gold production and sales. While gold production rose by 2.6% over the prior year to 895,838 ounces, gold sales went up by 1.8% to 874,230 ounces.
Cash flow from operations remained solid at $961,366 million, up 33.1% from the prior year. Although the company's short-term debt rose to $740,000 from $100,000 at the start of the year, its cash balance more than doubled from the previous year to $921.9 million, hinting at a robust liquidity position.
Agnico-Eagle Mines also revised its production estimates for the Hope Bay project, increasing the potential annual output to 350,000-400,000 ounces from an earlier forecast of 250,000-300,000 ounces. In Canada, the company's Upper Beaver project is expected to have a mine life of 13 years, with an average annual production of approximately 210,000 ounces of gold and 3,500 tonnes of copper. Additionally, Agnico-Eagle has gained exposure to the Oijarvi project in Finland, which hosts a small resource of approximately 2.7 million tonnes and 2.02 million ounces of silver.
To support its growth plans, the company has announced an increase in its exploration budget by $50 million for the second half of 2024.
Overall, analysts have deemed the stock a “Strong Buy.” Out of 14 analysts covering AEM, 10 have a “Strong Buy” rating, 3 have a “Moderate Buy” rating, and 1 has a “Hold.” Like Newmont, shares of AEM are lingering near Wall Street's average price target, but the stock has room to run about 17.4% to its Street-high of $97.09.
#3. Barrick Gold
Founded in 1983, Barrick Gold (GOLD) is one of the largest gold mining companies in the world. The company primarily focuses on the exploration, development, production, and sale of gold and copper. It operates several mines across North America, South America, Africa, and Australia. GOLD's market cap is currently at $35.7 billion.
GOLD stock is up about 14% on a YTD basis, and pays a quarterly dividend of $0.10. That translates to an annual yield of 1.96%.
Like its gold mining peers above, Barrick Gold also reported a strong Q2, with earnings and revenue surpassing estimates. Revenues for the quarter came in at $3.16 billion, a yearly rise of 12%, as an average realized gold price of $2,344/ounce compared favorably to the previous year's $1,972/ounce. Adjusted EPS rose by 72% from the prior year to $0.32, surpassing the consensus estimate of $0.27. Over the past five quarters, Barrick Gold's EPS have beaten expectations each time.
Although gold production slid by 6% from the previous year to 948,000 ounces, cash flow from operations increased by 39.3% yearly to $1.16 billion. Free cash flow almost went up by more than five times to $340 million from $63 million in the year-ago period. Short-term debt levels remained almost stable at $4.7 billion from the beginning of the year.
Moreover, Barrick Gold holds a 61.5% stake in Nevada Gold Mines, the world's largest gold-producing mine project. The remaining ownership belongs to Newmont Group. Notably, Barrick has also demonstrated its ability to replenish its reserves consistently, achieving reserve replacement for the third consecutive year in 2023. Gold reserves saw a 109% replacement, while copper reserves reached a 124% replacement. Over the past five years, the company's gold reserves have grown by approximately 8%.
Analysts have a consensus rating of “Strong Buy” for GOLD stock, which has about 7.5% upside potential to its mean price target of $22.16. Out of 17 analysts covering the stock, 11 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, and 4 have a “Hold.”
