A month and a half into the new year, the gold price rally still looks as strong as ever. Trading at $1,236 per ounce, the price of the yellow metal is up 8% since the start of 2017, not bad considering President Trump was just touting the stock market's climb to new record levels as a testament to growing optimism, even though the S&P 500 is up less than 5% in 2017.
Continue Reading Below
There are also a number of good reasons gold may continue to climb, such as China buying more gold to bolster its efforts at making the yuan a world currency, doubts about whether the Federal Reserve will continue to raise interest rates, and heightened geopolitical risks. All or none may pan out, but investors are taking stock of the possibilities and driving up the price of the precious metal along with those that mine it.
Image source: Getty Images.
Just about every gold stock no matter its size is up by double digits so far this year, but the three miners below are leading the pack, having risen in 2017 by at least 30% or more. Let's take a closer look at why they've come so far so fast and whether that can continue.
The rally for Goldcorp's (NYSE: GG) shares began in late December when analysts at TD Securities upgraded the stock from hold to buy because they anticipated positive developments coming out of its investor day presentation in January, and the gold miner didn't disappoint. Goldcorp revised its near-term production forecast to 2.5 million ounces of gold per year for the 2017 to 2018 period, but then gave an upbeat outlook beyond that, saying production would grow to 2.7 million ounces in 2019 and 3 million ounces in 2020. It anticipated all-in sustaining costs to be between $810 and $893 per gold ounce, driven in large part by its top mine, Pueblo Viejo (jointly owned with Barrick Gold), which it forecasts will produce 415,000 ounces of gold in fiscal 2017.
Continue Reading Below
Moreover, it also struck deals to sell its Cerro Blanco project in Chile and its Los Filos mine in Mexico, and intends to put other non-core assets on the market for sale as well, using the proceeds to invest in growth projects at its core mines.
Image source: Goldcorp.
In its just-reported fourth-quarter earnings, Goldcorp swung to a profit of $101 million compared to a loss of $4.3 billion last year, sending its stock an additional 6% higher on the day. Greater, more profitable production in an environment that is pushing gold prices higher bodes well for Goldcorp to continue its turnaround.
McEwen Mining, +44%
McEwen Mining (NYSE: MUX) was already one of the best-performing gold stocks of 2016, and though its performance eased back toward the end of the year, it started off 2017 by running strong out of the gate again. It was helped in large part by its announcement in the middle of January that it had achieved gold and silver production in line with the forecasts it made from its two producing mines, El Gallo in Mexico and San Jose in Argentina.
It also noted that it had $64 million in cash, equivalents, and precious metals, which, when coupled with the fact that it also has no debt, made it a prime candidate to begin making acquisitions, which it just started doing by buying exploration junior Lexam, though it was an all-stock deal. Lexam shareholders will receive 0.056 of a McEwen Mining share valued at $4.23, which based on exchange ratios represents a 30% premium for the volume weighted average price of Lexam stock.
Image source: McEwen Mining.
Lexam's value lies in its multiple advanced exploration projects located in the Timmins gold camp of Ontario, which McEwen says adds measured and indicated gold resources of almost 1.5 million ounces and inferred gold resources of just under 1 million ounces to its resource base. Furthermore, McEwen also believes it has the potential to begin production at the Timmins properties within two years' time.
With such financial stability and exploration potential before it, McEwen Mining should also be golden in the year ahead.
Richmont Mines, +46%
Perhaps the best-performing gold stock so far in 2017 that's most surprising is tiny Richmont Mines (NYSEMKT: RIC), which has gained nearly 50% over the first seven weeks of the new year. Like Goldcorp and McEwen before it, Richmont enjoyed a strong run-up in value over the first six months of the year, only to give back large parts of the gains in thesecondhalf of the year as gold prices weakened. With the precious metal's newfound strength, Richmont seems to be turning around, too.
Yet there was more to its pullback last year that might give some investors pause as to whether it can continue to carry the momentum further. Richmont's stock got hit hard in November because of an earnings report that showed it to be a high-cost miner with all-in sustaining costs of $1,230 per ounce in the third quarter, though it did expect ASIC to decline for the full year to between $935 and $1,015 per ounce. It didn't help that Richmont was also burning cash when its revenues were in decline.
Image source: Richmont Mines.
Still, it got a big boost at the end of last month when it updated its mineral reserves and resources at its flagship Island Gold mine in Ontario to show mineral reserves increased 34% net of depletion, to 752,200 ounces of gold with average grades rising 11% to 9.17 grams per tonne. The project also showed an increase of 28% and 30% in measured and indicated and inferred ounces of gold, respectively.
At its Beaufor mine in Quebec, however, Richmont reported fewer reserves as delineation and exploration drilling failed to offset mining depletion, limiting its ability to extend the life of the mine.Because of its small size and heft,Richmont Mines willundoubtedly be more volatile and will suffer from large swings in value as the prospects for gold grow or diminish.
10 stocks we like better than Goldcorp
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Goldcorp wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 6, 2017