Investors in gold are among the few who possibly aren't feeling the pinch of the coronavirus market sell-off. Gold prices have surged in recent weeks, proving yet again that the yellow metal remains a preferred safe-haven asset that investors flock to during a global economic crisis like the present one.
With uncertainty around the COVID-19 pandemic showing no signs of abatement and gold prices holding up strong, here are three compelling gold stocks you'll want to consider buying now for the long haul.
Forget gold miners and buy this gem instead
Franco-Nevada (NYSE:FNV) is not a gold mining company but is still one of the best gold stocks to buy, simply because its business structure gives you exposure to gold sans the risks involved with a gold mining stock.
As a gold streaming and royalty company, Franco-Nevada buys the yellow metal from third-party miners at pre-determined percentages in exchange for funding them up front. There are two major advantages of such an arrangement: Franco-Nevada doesn't have to bear costs and risks associated with the business of mining, and it gets to procure gold at rates much below spot prices.
The last point, in particular, means Franco-Nevada can make a lot more money in a rising gold-price environment. Of course, Franco-Nevada depends entirely on other miners for gold "production," but as long as the mines operate, it continues to receive "streams" of gold at a discount and sell them in the market to earn high margins. For example, Franco-Nevada's cost of stream sales was only $135.1 million in 2019 but it generated revenue worth $844.1 million in revenue.
2019 was in fact a record gold sales, revenue, and income year for Franco-Nevada. The company also increased its dividends for the 12th consecutive year -- a record that also makes it a top gold dividend stock. With key partnership mine First Quantum Minerals' Cobre Panama on a major expansion spree, Franco-Nevada's prospects look strong. When combined with its proven business model and operational and financial track record, it's a no-brainer gold stock to own.
This gold stock could continue to surprise
In March 2019, I gave an outperform CAPS call on Kirkland Lake Gold (NYSE:KL) as I considered it one of the top gold stocks to buy at that point. The stock has handily outperformed since, and I continue to remain bullish about this gold miner's prospects, thanks to its stupendous growth in recent years.
You see, here's what Kirkland has done between 2016 and 2019:
- More than tripled gold production to just short of one million ounces.
- Slashed all-in-sustaining cost by nearly 40%.
- Doubled net income.
- Quadrupled free cash flow.
2019 was a record production and revenue year for Kirkland Gold, even encouraging management to double its quarterly dividend to $0.125 per share.
With the acquisition of Detour Gold earlier this year, Kirkland expects to produce nearly 1.5 million ounces of gold in 2020, although it expects much higher costs. Yet with gold prices soaring in recent weeks, the miner should be able to offset higher costs with rising production and prices to a large extent.
With a mine life of 22 years, Detour Lake open pit mine should add substantial value to Kirkland in coming years. Kirkland is also among the few gold mining companies to boast a strong balance sheet -- declining debt and rising cash flows -- making it an intriguing gold stock to buy and hold.
This gold miner passes a key test: liquidity
Speaking of balance sheet fortitude, SSR Mining (NASDAQ:SSRM) is another gold miner that's setting a great example.
SSR has three operating mines -- Marigold in Nevada and Seabee in Saskatchewan, both of which are gold mines acquired in 2014 and 2016, respectively, and Puna in Argentina, which produces silver, lead, and zinc and started commercial production in 2018. Until 2017, the company called itself Silver Standard, after which it renamed itself to reflect a rising contribution of gold in its precious metals commodity mix. In 2020, SSR expects 80% gold production and 20% silver.
2019 was a record production year for all three mines. The COVID-19 pandemic has forced SSR to temporarily suspend key operations, which means mines like Marigold and Seabee may not be able to achieve record production as targeted earlier. But it's exactly a situation like this when liquidity (a strong cash position with manageable debt) can help a mining company ride out the storm.
Further, higher gold prices could hugely help SSR Mining preserve cash now, if not mint more, and I wouldn't be surprised if it puts the money to use on an acquisition in the near future to boost its production pipeline for coming decades. The prospects make SSR Mining a compelling gold stock to buy.