Predictions of gold and gold stocks falling as interest rates rise are proving to be quite far off the mark. Gold prices just hit five-month highs, and most gold stocks are turning out to be outperformers this year, thanks to gold's flight-to-safety appeal. Donald Trump's presidency has come with its fair share of unpredictability, and Brexit and geo-political events like the Syrian strike have created the perfect environment for gold -- and everything related, such as gold mining stocks -- to thrive.
For investors, the timing couldn't be better to invest in gold stocks, and the industry is still abuzz with plenty of golden opportunities. But before I tell you the top gold stocks to buy for 2017, take a look at how the biggest names have fared so far.
| Gold Stock | Market Cap* | Year-to-Date Returns* |
|---|---|---|
| Barrick Gold Corp (GOLD 1.68%) | $24.34 billion | 26.5% |
| Newmont Mining Corp (NEM -0.03%) | $18.93 billion | 2.96% |
| Goldcorp Inc. (GG) | $13.61 billion | 13.97% |
| Franco Nevada Corp. (FNV 0.98%) | $12.40 billion | 17% |
| AngloGold Ashanti Limited (AU -0.59%) | $5.26 billion | 22.17% |
| Royal Gold, Inc. (RGLD -1.09%) | $5.05 billion | 17.77% |
| Kinross Gold Corp. (KGC 1.40%) | $4.97 billion | 23.79% |
| Yamana Gold Inc. (AUY) | $2.94 billion | 7.47% |
| B2Gold Corp (BTG -1.88%) | $2.82 billion | 23.63% |
| Eldorado Gold Corp (EGO -0.40%) | $2.6 billion | 10.25% |
Data source: Google Finance. *As of April 12, 2017.
Among these, I believe the following three gold stocks are the best you can buy today given their growth potential.
Barrick Gold: the largest, lowest-cost gold miner
Given how volatile gold prices can be, cost is perhaps the most important determinant of a gold miner's profits. Barrick leads the pack, with its stunning transformation in 2016 making it a top gold stock to buy.
There's never a wrong time to buy gold stocks. Image source: Getty Images.
Barrick not only slashed its all-in-sustaining costs (AISC) by 12% to $730 per ounce, it also reduced debt by $2 billion and generated record $1.5 billion in free cash flow last year. For shareholders, Barrick's turnaround has meant a two-way gain: the appreciation in stock price, and the recent (huge) 50% hike in dividends that came after several years of hiatus.
Having taken care of a better part of its non-core assets and debt, Barrick is now shifting focus on growth. It recently extended a partnership with Goldcorp to jointly operate its Cerro Casale mine at Chile, and it also joined hands with China's leading gold miner to explore the high-potential El Indio Gold Belt on the Argentina-Chile border. While these moves should ensure Barrick's reserves last decades, its immediate goals to slash debt further by $2.9 billion by next year, remain FCF-positive at gold prices of $1,000 per ounce, and maintain AISC below $770 per ounce through 2019 should bring in rich rewards for shareholders.
Franco-Nevada: A unique growth gold stock
Given the offbeat, high-margin nature of the precious metal streaming business, it's only fair to include a streaming stock on my top gold stock picks for 2017. Between Franco-Nevada and Royal Gold, the latter offers greater dividend security, but Franco-Nevada's growth catalysts are stronger.
Franco-Nevada's 2016 revenue source. Image source: Company's April, 2017 corporate presentation.
Franco-Nevada has grown its profits, cash flows, and dividends at a strong pace in recent years thanks to large exposure to gold and a diversified portfolio, as you can see in the picture on the right. As a royalty and stream company, Franco-Nevada buys metal stream from traditional miners at low costs in exchange for upfront financing. Some of its top mining partners today include Barrick, Teck Resources, Glencore, and Coeur Mining.
Franco-Nevada's projected gold equivalent ounces production of 515,000 to 540,000 by 2021 represents roughly 14% growth over 2016, which itself was a record production year for the company.
The other interesting thing is the exposure to oil that Franco-Nevada offers. Its impending acquisition of $110 million worth of oil and gas royalty rights in the Midland Permian Basin combined with its recent $100 million investment in the STACK play in Oklahoma should leverage Franco-Nevada to growth opportunities in eight out of the top 20 active oil counties in the U.S. The company believes it could triple its oil and gas revenues in the next decade.
Given its growth prospects, Franco-Nevada looks poised to be a winning gold stock in the long run.
Goldcorp: An underrated gold stock
Goldcorp, one of the largest gold miners in the world, has just come off a year of restructuring that helped it lower AISC by roughly 4% to $856 an ounce and swing to profits from losses in 2015. But it's the miner's recent growth moves -- including its acquisition of a 25% stake each from Barrick and Kinross to become a part-owner in Cerro Casale -- that should get investors excited.
This isn't the first time the two heavyweights have worked together; Goldcorp already jointly operates the Pueblo Viejo mine with Barrick. Today, it is Goldcorp's largest and lowest-cost mine. Given that Cerro Casale is one of the world's largest, yet undeveloped, gold mines, one can only imagine the kind of value the two companies can unlock.
Meanwhile, Goldcorp expects to bring down its AISC to $700 per ounce and increase gold production by 20% in the next five years. This balanced approach to growth and costs should be rewarding to shareholders in the long run. Goldcorp stock is still down about 11% in the past year and hugely lagging Barrick, offering investors in gold a great entry point right now.
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