With the first full month of summer under way, it's not only the days that are growing warmer. The gold market is also heating up. On the first day of July, August gold futures flirted with the $1,800 threshold, crossing it briefly and then falling. Nonetheless, it was the highest price gold futures had reached since August 2011.
Between COVID-19 cases rising in several areas throughout the U.S. and geopolitical tensions remaining high, it's clear that investors are motivated to maintain exposure to gold as a hedge against overall market volatility. Investors, therefore, may find themselves motivated to add some gold exposure to their portfolios. And it just so happens that there are some compelling opportunities right now: stocks like Equinox Gold (NYSEMKT:EQX), Franco-Nevada (NYSE:FNV), and Newmont Goldcorp (NYSE:NEM).
Equinox Gold may not have been one of the more recognizable names among gold investors, but having completed a merger with Leagold Mining in March, it certainly deserves some attention now. In addition to operating six mines throughout the Americas, the company also has four projects in development.
For 2020, management is targeting gold production of 540,000 ounces to 600,000 ounces, but the company imagines this will grow significantly, targeting annual gold production (though it hasn't provided a time frame) of 1 million ounces. With proven and probable gold reserves of 12.2 million ounces and measured and indicated resources of 21.9 million ounces, the company seems capable of achieving this target through organic growth.
Forecasting 2020 all-in sustaining costs of about $1,030 per ounce, Equinox Gold has the potential to generate a strong margin this year with gold averaging $1,646 per ounce year to date. But what is especially alluring about the company is the amount of skin that management has in the game. Insiders own about 9% of the company, a considerable amount compared with most of its peers; consequently, investors can rest assured that management is motivated to grow shareholder value.
Swim with the stream
For gold-seeking investors who are not interested in the individual companies digging the metal out of the ground, Franco-Nevada is an ideal choice. A royalty and streaming company, Franco-Nevada operates more like a banker than a miner, providing up-front capital to mining companies. In exchange, Franco-Nevada retains the rights to purchase a certain amount of gold (or other metal) at a pre-set discounted price, or to receive a percentage of mineral production from a mine.
Franco-Nevada's exposure to gold is considerable. Partnering with some of the world's leading mining companies, it has a portfolio of gold and gold-equivalent projects representing 56 operating assets, 35 in advanced development, and 206 in the exploration phase, suggesting that there are ample opportunities for growth.
In terms of its financials, the company glitters brightly. With no debt on its balance sheet, it is in sound financial health. And for investors who prefer socially responsible ESG investing, Franco-Nevada is a worthy consideration. Sustainalytics, a leader in ESG and corporate governance research, rated it No. 1 out of 104 precious metals companies.
The top dog
In addition to being the only gold producer in the S&P 500, Newmont is the largest publicly traded gold miner based on market cap. The company, founded in 1921, will be celebrating its 100th birthday, making it one of the most experienced names in the industry.
Investors will find that it is in a secure financial position. With a net debt-to-adjusted-EBITDA ratio of about 0.7, it's clear that management is not overly reliant on leverage. And in the first quarter of 2020, it refinanced about $1 billion of the company's debt, a move expected to save about $17 million annually in interest payments.
While gold-mining companies are not typically at the forefront of dividend investors' minds, Newmont stands out among its peers with one of the highest yields, 1.63%, after raising the quarterly distribution 79% in Q1 to $0.25 per share. But it's not only the dividend that exemplifies management's commitment to increasing shareholder value; it also has a goal of repurchasing $1 billion in stock by the end of 2020. Investors would be well-served to recognize that the company's declarations of future dividends may remain flat or possibly dip in the future and will rely heavily on future gold prices.
Golden last words
Investors looking to add exposure to gold can often feel overwhelmed by the different avenues before them: purchasing gold bullion, investing in a mining company, buying into an ETF. While there are advantages and disadvantages to each, Equinox Gold, Franco-Nevada, and Newmont are three of the most lustrous opportunities for investors in July.
For those with a long time horizon and a higher threshold for risk, Equinox is a worthy consideration. On the other hand, more-conservative investors would be better served by Franco-Nevada, which, unlike mining companies, doesn't have exposure to the risks associated with the construction of mines. And Newmont represents a viable option for those with an eye for dividends.