2021 was a dismal year for gold, falling 4% while the S&P 500 gained 27%. However year-to-date (YTD), gold is up 5%, outpacing the S&P 500, which is down about 3%.
Gold has caught a bid this year despite the Fed raising rates and fiscal deficits narrowing. However, two major catalysts driving gold prices higher: inflation data that continues to come in above expectations and heightened geopolitical risk, due to Russia’s invasion of Ukraine.
Such circumstances tend to increase demand for gold, especially in a rising rate environment when bonds are no longer effective stores of value. Further, while the Fed is raising rates, real interest rates remain accommodative which means that gold should continue to outperform. Therefore, Investors should consider high-quality gold miners with low costs of production like B2Gold Corp. (BTG).
Read on to find out why BTG is my featured stock under $10 of the week…
Company Background
BTG has operations in Mali, the Philippines, and Namibia with reserves and development projects in a variety of additional locations. It’s known as one of the producers with the lowest costs due to easily accessible reserves in these locations with relatively friendly jurisdictions.
These are two major advantages for BTG relative to other gold miners. One is that it is diversified in terms of not being overly reliant on a single mine, while some of its peers are reliant on a single mine as the sole source of revenue. The second reason is that BTG operates in countries that have governments with a well-established rule of law and business practices compared to other countries where there is more political risk.
Operational Improvement
BTG is back to running at full capacity following some disruptions in 2020 and the first half of 2021 due to the pandemic. One very positive development for BTG is its improvement in operations.
This is evident as its free cash flow (FCF) per share is more than double what it was in 2011-2012 when gold was previously at these lofty levels above $1,800.
In terms of production, it’s expected to marginally increase in 2022 from 950,000 ounces in 2021 to between 1,000,000 and 1,050,000 ounces in 2022 at an all-in cost of production between $1,010 and $1,050 per ounce.
Catalysts
The most important catalyst for BTG is that gold prices should remain strong in 2022. One is heightened geopolitical tensions following Russia’s invasion of Ukraine and sanctions which could drive demand for assets that are out of NATO’s sphere of influence.
The other is that despite the Fed’s recent hike and plan for 6 to 7 more this year, real interest rates remain negative. This is an indication that the Fed continues to believe that inflation will decline on its own accord which has proven to be incorrect so far. The sanctions on Russia could also add to inflationary pressures as the country is a source of metals and energy that can’t be easily replaced.
Valuation
BTG is also attractive from a valuation perspective with a P/E of 10.7 which is cheaper than the S&P 500. The company has no debt and has a relatively low cost of production.
Another positive is that the company pays a dividend yield of 3.6% which is above the S&P 500’s 1.3% yield and the 10-year Treasury's 2% yield. The stock also has 50% upside compared to its price in August 2020, while gold is only 5% below these levels.
POWR Ratings
Given these positives, it’s not surprising that BTG has an overall B rating, which equates to a Buy in the POWR Ratings system. B-rated stocks have posted an average annual performance of 20.1% which compares favorably to the S&P 500’s annual performance of 8.0%.
In terms of component grades, BTG has an A for Quality which is consistent with its improving operations, low cost of production, and above-average dividend yield. It also has a B for Value due to its lack of debt and low P/E. Click here to see BTG’s complete POWR Ratings including component grades for Momentum and Growth.
BTG shares . Year-to-date, BTG has gained 18.88%, versus a -3.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.
Here’s Why BTG is My Featured Stock of the Week Under $10 StockNews.com
