In 2021, gold was an underperformer with a 4% loss, while the S&P 500 was up 27%. We are 2 months into 2022 but we are seeing a reversal in these trends with the S&P 500 down by 8%, while gold is up more than 8%.
Contrary to many investors’ expectations for this year, gold has been rising despite the Fed’s hawkish pivot with the market now expecting between 5 to 7 rate hikes this year. Some of this is due to inflation data continuing to come in above expectations and failing to turn lower as many had anticipated, i.e. the ‘transitory’ argument.
However, the major catalyst for this move higher is the increasing geopolitical tensions with Russia’s invasion of Ukraine. Such circumstances tend to increase demand for gold, especially in a rising rate environment when bonds are less attractive. Investors should consider buying the following high-quality gold miners to take advantage of rising economic uncertainty and geopolitical risk: DRDGold (DRD), Gold Fields Limited (GFI), and B2Gold Corp. (BTG).
DRDGold (DRD)
DRD operates as a gold mining company that engages in the surface gold tailings retreatment business in South Africa. Based in Johannesburg, South Africa, the company is involved in exploration, extraction, processing, and smelting activities. DRD extracts gold from the by-products of traditional mining which is environmentally friendly and has lower costs than traditional mining.
Notably, DRD doesn’t hedge which means shares tend to be more volatile but outperform during gold bull markets. However, the company has paid out dividends for the last 15 years and 50.1% of DRD is owned by Sibanye Stillwater (SBSW), one of the largest mining companies in the world.
The company has been doing well due to the strength in gold prices. In 2021 due to the coronavirus impacting production earlier in the year, the company saw a 3% drop in production. This should increase in the coming years especially as mining activity increases with higher gold prices.
Unlike most precious metals miners, DRD also pays a generous dividend of 5.3% which means that investors get rewarded for their patience. The company also has low levels of debt and a decent cash cushion.
DRD’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. DRD has a Value grade of B due to its P/E of 13.1 It is ranked #5 in the Miners - Gold industry. Click here to see the complete POWR Ratings for DRD including Growth, Momentum, Stability, Sentiment, and Quality grades.
Gold Fields Limited (GFI)
GFI is a producer of gold and copper, involved in underground and surface gold and copper mining, exploration, development, extraction, processing, and smelting. It holds interests in nine operating mines located in Australia, Peru, South Africa, and West Africa. GFI has 56.1 million ounces of gold equivalent reserves.
Most of GFI’s gold comes from Australia and West Africa. Over the past couple of years, GFI’s production was impacted by the pandemic, labor strikes, and regulatory issues. Most of these are in the rearview mirror as production was quite strong in the latter half of 2021.
This is evident with the company reporting net income that was 9% higher on an annual basis despite lower prices and slightly higher costs. The company has tremendous upside as it owns the third-largest known deposit of gold. It’s forecasting production of 2.4 million ounces in 2024.
These favorable developments and positive momentum make GFI one of the top ways for investors to bet on rising gold prices. The POWR Ratings also agree as the stock is rated a B which translates to a Buy rating. Further, it has a B for Value which isn’t surprising given its P/E of 15.9 and healthy cash reserves in addition to being cash flow positive.
If you are interested in GFI’s component grades for Growth, Momentum, Industry, Stability, Quality, and Sentiment, please click here.
B2Gold Corp. (BTG)
BTG has operations in Mali, the Philippines, and Namibia with reserves and development projects in a variety of additional locations. It’s known as one of the producers with the lowest costs due to easily accessible reserves in these locations with relatively friendly jurisdictions.
In 2021, BTG produced 950,000 ounces of gold in total. Next year, the company is forecasting between 900,000 and 1,050,000 ounces at an all-in cost of production between $1,010 and $1,050 per ounce.
The company is back to running at full capacity following some disruptions in 2020 and the first half of 2021 due to the pandemic. One very positive development for BTG is its improvement in operations which is seen with its free cash flow per share more than 100% above its free cash flow per share when gold was at $1,800 in the 2011-2012 range.
Another positive is that the company pays a dividend yield of 3.9% which is above the S&P 500’s 1.3% yield and the 10-year Treasurys 2% yield. It’s also quite cheap with a forward P/E of 9.6. I
Given these positives, it’s not surprising that BTG has an overall B rating, which equates to a Buy in the POWR Ratings system. The company also has an A for Quality which is consistent with its improving operations, low cost of production, and above-average dividend yield. Click here for BTG’s complete POWR Ratings including component grades for Momentum and Growth.
BTG shares were trading at $4.54 per share on Tuesday morning, up $0.09 (+2.02%). Year-to-date, BTG has gained 15.52%, versus a -12.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.
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