Investors typically look at gold and other precious metals in times of market turmoil. Naturally, gold has become a safe haven for investors as the novel coronavirus changes the landscape of financial markets. Hence, investors are clamoring to buy gold stocks as gold prices have risen 27% year to date.
However, things have not been all smooth-sailing. Gold, along with other precious metals, have had their supply chains severely impacted by the pandemic. However, unlike other precious metals, Gold has mounted a swift recovery on the back of higher investment demand. Moreover, the efforts of the Federal Reserve and Congress have also positively impacted the price of gold and gold stocks.
Therefore, investors are looking to load up on gold stocks in hopes that gold prices will continue to rise. However, investors aren’t so enthusiastic about all gold stocks. The following are the three gold stocks that have lost their luster:
Let’s take a closer look at each of these downtrodden stocks.
Gold Stocks: Alamos (AGI)
Toronto-based Alamos Gold recently released lackluster second-quarter results. Production was severely impacted by Covid 19, resulting in a massive 37.4% year-over-year reduction in the production of Gold. As a result, revenues declined by 24.9% during the second quarter compared to the same period last year. AGI stock is down 8% this month.
Additionally, free cash flows were in the negative at a loss of $5 million. However, the positive for the company is that it’s currently net-debt free. Hence, it’s tough to deny AGI stock’s long-term potential.
Although the pandemic has weakened top-line growth, expect Alamos to bounce back in the latter half of the year. Additionally, it has successfully advanced several key growth initiatives. “Importantly, we advanced several of our key growth initiatives, which culminated in the completion of the lower mine expansion at Young-Davidson, the announcement of the Phase 3 expansion of Island Gold and the La Yaqui Grande construction decisions earlier this month,” said CEO John McCluskey.
Agnico Eagle Mines (AEM)
Agnico Mines has been one of the most popular gold stocks in the market with tremendous long-term potential. However, like its peers, it had it tough due to the Covid-19 restrictions. Second-quarter results show a 17.1% decline in revenues sequentially. Naturally, production also tanked 19.5% sequentially as seven of its nine mines were impacted due to the lockdown restrictions. Hence, AEM stock has slowed down this month, after gaining 15% last month.
Free cash flows are arguably the weakest element of the company’s financial results. Free cash flows are at a loss of roughly $7.81 million due to the production slowdown. However, it has a relatively strong net-debt base of $1.3 billion. This is primarily because of a 22.9% reduction in long-term debt.
As with other companies, expect a ramp-up in operations in the latter half of the year. CEO Sean Boyd stated that July production would have exceeded 160,000 ounces of Gold. Hence, free cash flows should improve, which has been a cause for significant concern of late.
Franco-Nevada (FNV)
Toronto-based Franco-Nevada has performed exceedingly well in the past five years, experiencing strong revenue growth. However, like other companies in the sector, its second-quarter results were weighed down by the effects of the pandemic. Revenues in the second quarter were down 18.8% sequentially due to the decline in production activities. FNV stock is down almost 7% this month.
Some disruptions impacted 15 of its 56 producing assets. However, it’s expected that there would be a healthy jump in production in the third and fourth quarters. The company’s balance sheet, though, is solid with $1.7 billion available capital. Nevertheless, its pristine balance sheet has created an overbought situation. Price targets for FNV stock are at 13.2% lower than its current price of $131.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University. He does not directly own the securities mentioned above.