What are we looking for?
The stock markets have been in turmoil since U.S. President Donald Trump announced his tariff plan on April 2. The plan that was presented was more severe and further reaching than what most analysts expected. Gold is down about 4 per cent from its peak in early April.
Gold is considered a safe haven investment during times of turmoil and has held its value in three of the last four recessions. We have seen the price of gold climb 33 per cent over the past 12 months and some gold stocks have doubled in price in that time period. Can we still hide out in this sector while the tariffs get sorted out? Let’s look at what are the Stockcalc models are telling us for valuations here.
The screen
We used Stockcalc’s screener to select the top 10 listed gold mining companies by market capitalization on the TSX. We then used Stockcalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see if it is undervalued or overvalued compared with its price.
Overview of the techniques used:
- Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;
- A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
- An adjusted book value (ABV) is calculated by multiplying book value per share by its 10-year average price-to-book ratio.
- If we have analyst coverage, we may consider the consensus target price.
More about Stockcalc
Stockcalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. Stockcalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to stockcalc using the promo code ’Globe30′, which offers a 30-day free trial and special pricing for the second month.
What we found
You can see in the accompanying table the percentage difference between each stock’s recent close price and its intrinsic value. The “Stockcalc valuation” column is a weighted calculation derived from our models and analyst target data if used. All stocks on this list are dividend payers which is uncommon for any of the industries in the basic materials sector. We see three categories of equities here: A physical gold trust, two royalty companies and seven producers. Let’s look at a number of these companies:
The Sprott Physical Gold Trust PHYS-T was created to invest and hold substantially all of its assets in physical gold bullion (which is held at the Royal Canadian Mint). Their goal is to provide a secure, convenient and exchange-traded investment alternative for investors who want to hold physical gold without the inconvenience of a direct investment in physical gold bullion. The trust has a 0.41-per-cent management expense ratio (MER) and holds 3.4 million ounces of gold worth over US$10-billion. It does not pay a dividend.
Wheaton Precious Metals WPM-T and Franco Nevada FNV-T are royalty and streaming companies. They invest funds into developing or producing companies in exchange for a royalty stream. By using this model, they have indirect operational exposure. The royalty stream they get back can be physical metals or a percentage of revenue. Of note, both have price-to-book ratios at 4.5 times, more than twice the average of the producers, indicating they carry substantially less assets on their balance sheet than the producers.
Agnico Eagle Mines AEM-T, Kinross Gold K-T and Lundin LUG-T have all moved up more than 75 per cent in the last 12 months and our models show further upside. Agnico Eagle is a gold miner with mines in Canada, Mexico, Finland, and Australia. Kinross Gold is a Canada-based gold producer, producing roughly 2.1 million gold-equivalent ounces in 2024. Lundin Gold is also a Canada-based company and is focused on its Fruta del Norte gold operation and developing its portfolio of mineral concessions in Ecuador.
Newmont NGT-T is the world’s largest gold miner. It bought Goldcorp in 2019, combined its Nevada mines in a joint venture with competitor Barrick later that year, and also purchased competitor Newcrest in November, 2023. The company is expected to sell roughly 5.5 million ounces of gold in 2025. Our models show Newmont as the most undervalued on the list.
Investing involves risk. Stockcalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.
Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B. Brian holds a position in WPM.