Investors in gold won't forget 2020 anytime soon. It appears a gold bull supercycle is underway. Gold prices and many gold stocks have had double-digit surges this year. The rally may not be over yet, what with a pandemic raging on and global uncertainty still high.
In fact, now's a great time to add some gold stocks to your portfolio as you buckle up for a new year. Here are three compelling ones you'll want to consider buying now (psst... two of these gold stocks have flown under Wall Street's radar, so you might want to jump in while there's still time).
An offbeat but incredible gold play
What if you could gain exposure to gold without having to worry about the risks inherent in a mining company? Franco-Nevada (FNV 2.14%) offers this incredible way to invest in gold.
Franco-Nevada is a streaming and royalty company. So it doesn't own and operate mines; instead, it buys gold and other metals like platinum from third-party miners at a predetermined percentage of their mine production. In exchange, it finances those miners upfront.
Image source: Getty Images.
The deals are such that Franco-Nevada's purchase price of gold is significantly below spot prices. That's where the real appeal of investing in the company lies. Franco-Nevada earns hefty margins, and can mint a lot of money when the price of gold rises. Just see the company's latest numbers -- its cost of sales for the nine months ended Sept. 30 was only $285.6 million against revenue worth $715.7 million.
That puts Franco-Nevada on track to deliver record revenue in a year when several mines closed because of the COVID-19 pandemic. Credit goes to a strong and diversified portfolio of streaming agreements with 51 producing mines. One of them is First Quantum Minerals' Cobre Panama mine, which is rapidly expanding. It's expected to be the largest contributing mine to Franco-Nevada's sales by 2024.
Long-life agreements, a large asset base of mines under development, and royalties in oil and gas assets leave ample room for growth at Franco-Nevada. What's more, Franco-Nevada is also among the best gold dividend stocks, having increased its dividends for 13 consecutive years. That pretty much explains the stock's staggering returns in the past -- a trend I believe could continue for years to come.
This gold stock wants to pay you more
2020 will go down in SSR Mining's (SSRM 0.91%) history as one of its biggest years thanks to the merger of equals between SSR and Alacer Gold. The market wasn't pleased with the deal, though. There are valid reasons for concern, but investors might want to look at the brighter side of things. SSR Mining's growth may have just started, but the stock's still down about 2% so far this year. I smell an opportunity there.
Alacer's cornerstone mine, Copler, is in Turkey, where the economy is grappling with geopolitical concerns. That adds significant risk to SSR's portfolio, which otherwise consists of three operations in safe locations: Marigold in the U.S., Seabee in Canada, and Puna in Argentina. That Alacer Gold's President and CEO Rodney Antal took over at SSR also added to investors' uncertainty.
However, Copler is a massive mine that will boost SSR's production significantly and help lower costs. Copler produced record 391,213 ounces of gold at all-in sustaining cost (AISC) of $623 per ounce of gold sold in 2019. Comparatively, SSR produced 421,828 gold equivalent ounces at AISC of $1,034 per ounce of gold sold in 2019.
Moreover, SSR's free cash flows should get a big lift. The company is expected to generate FCF worth $450 million annually through 2022. In fact, SSR is initiating a dividend of $0.05 per share beginning in Q1 2021. It further expects to return excess FCF to shareholders as supplemental dividends or share repurchases.
Investors have a lot to look forward to from SSR Mining. Meanwhile, the Turkish government is striving to revive the economy. Turkey's gross domestic product (GDP) grew 6.7% during the third quarter. That respite makes SSR Mining an even more compelling gold stock to buy now.
The market is ignoring the explosive growth here
Kirkland Lake Gold (KL) is growing at a staggering pace, yet its shares are down nearly 8% so far this year. Kirkland's gold production has jumped more than threefold between 2016 and 2019.
Data source: Kirkland Lake Gold. Chart by author. 000's = Thousands omitted.
Kirkland's AISC has fallen steadily at the same time, driving its net earnings to $560.1 million in 2019 from only $42.1 million in 2016. 2019 was, in fact, a record year for Kirkland in terms of gold production, revenue, and net profit. Investors have been richly rewarded, with Kirkland increasing dividend twice in 2020. With that, its dividend per share has nearly tripled just this year.
Data source: Kirkland Lake Gold. Chart by author.
Here's the best part: Kirkland is all set to deliver yet another record year in 2020, thanks to its acquisition of Canada-based Detour Gold for roughly $3.7 billion. The acquisition added a long-life, high-grade mine, Detour Lake, to Kirkland's portfolio. As a result, Kirkland expects to produce $1.35 billion-$1.4 billion gold ounces in 2020.
There's just one catch: Detour Lake is a relatively high-cost mine, which is why Kirkland's AISC has shot up this year and is expected to be $790-$810 per ounce of gold sold for the full year. However, I'm not too worried, as I expect Kirkland to turn Detour Lake into a lower-cost mine with time. Also, the acquisition has been earnings and free-cash-flow accretive: From Jan. 31, 2020, to Sept. 30, 2020, Detour Lake contributed $231 million, or nearly 41%, to Kirkland's total free cash flow. Kirkland is already a debt-free company, so its balance sheet looks even stronger now.
In short, Kirkland's production, cash flows, and dividends are clearly on an uptrend. Yet, the stock is trading significantly below its five-year average P/E of 27 times earnings, making it a great gold stock to own now.
