Investors in gold stocks are among the few to have found some breathing space amid the uncertainty around. The unprecedented COVID-19 pandemic that's stalled economies across the globe and hit global stock markets have sent investors scrambling for "safe-haven assets" like gold in recent weeks, sending prices of the yellow metal soaring. With gold prices rising, how can gold stocks be far behind?
According to data provided by S&P Global Market Intelligence, these three gold stocks surged at least 30% each in the month of April:
- Barrick Gold (GOLD -3.91%): 38.6%
- Coeur Mining (CDE -7.33%): 31.2%
- Franco-Nevada Corp (FNV -3.45%): 31%
While the rally in gold prices was a definite trigger, each of these companies also reported preliminary or actual quarterly numbers in April which added fuel to the fire.
The rally in gold prices will likely persist, backed by several favorable factors. Some industry experts even opine that the gradual opening up of economies and potential stimulus measures from banks in some of the world's largest economies -- such as India and China, which are also the largest gold-consuming nations -- could trigger a bull run for mining companies, especially precious metals.
We'd need a crystal ball to know if and when that might happen. For now, here's all you need to know about the three gold stocks that skyrocketed last month.
On April 16, Barrick announced preliminary numbers for its first quarter, including:
- Gold production and sales of 1.25 million ounces and 1.22 million ounces, respectively.
- Copper production and sales of 115 million pounds and 110 million pounds, respectively.
Those numbers fell year over year, but were in line with management's previous guidance. Barrick also maintained its full-year outlook thanks largely to significantly higher gold prices. For the first quarter, Barrick's realized gold price (Barrick released actual Q1 numbers on May 6) came in at $1,589 per ounce versus $1,307 per ounce in the year-ago quarter.
Barrick also continued to pare down debt, grow cash from operations, and maintain its dividend. With such a strong start to the year, investors applauded Barrick's results and sent the stock higher, hoping the gold mining giant will continue to make money as gold prices hold up.
Despite announcing temporary suspension of activities at key mine Palmarejo in Mexico, and withdrawing its full-year guidance early April, Coeur Mining shares shot up for two possible reasons: rising gold prices and management saying that "the Company will continue targeting safe execution of its operating plans and reevaluate instituting full-year 2020 guidance as the year progresses."
The euphoria didn't last long, though. On April 22, Coeur shares crashed by double digits as investors realized that suspension of operations at Palmarejo could hit Coeur's second-quarter production hard. Its other three mines, all in the U.S., accounted for only 56% of its total quarterly revenue, indicating Palmarejo's importance to the miner's top line.
Coeur stock's run-up earlier in April, though, was enough for it to end the month with a solid 31.2% gain. Among the positives, Coeur's gold sales increased 19.5% year over year in Q1, and the miner initiated its largest-ever exploration program at Palmarejo and other deposits, and boosted its balance sheet during the quarter by drawing $100 million under a revolving credit loan "as a precautionary measure".
Add gold's sustained rally, and investors in Coeur continue to remain positive about the company's prospects, especially given its increasing focus on the yellow metal: In 2019, Coeur generated 69% revenue from gold, compared with only 31% in 2010. In the first quarter, gold sales contributed a quarterly high of 74% to the miner's total revenue.
Franco-Nevada didn't release its first-quarter earnings until May 6, nor were the COVID-19 updates it announced in early April encouraging. Yet the stock rallied sharply in April, largely because of its high-margin gold streaming and royalty business that benefits as gold prices rise.
Franco-Nevada doesn't mine and extract precious metals; it buys them from third-party miners at predetermined percentages and discounted prices in return for up-front funding. Thus, the suspension of mining activities in the wake of the coronavirus outbreak have hurt its operations.
Franco-Nevada withdrew its 2020 guidance on April 7, but also said the impact "of temporarily reduced or curtailed production is essentially limited to a deferral of revenue." Its oil and gas royalty business, though, should be hit hard because of the freefall in oil prices.
That said, Franco-Nevada highlighted how it's a debt-free company, has ample liquidity, and aims to "continue its track record of paying a sustainable and progressive dividend." On May 6, Franco-Nevada delivered strong numbers for Q1, increased its dividend for the 13th straight year, and said that any weakness in energy "is expected to be more than offset" by strength in its gold business through the year. That's largely kept the stock humming so far this month.