It’s no secret that gold performs its best in a bear market. Since it’s a safe-haven investment, investors flock to it in times of fear, usually causing it to increase in value while everything else is decreasing.
What’s even more exciting is that investors can leverage would-be returns in gold by buying gold-mining stocks. Most often, gold miners are considered highly speculative and highly volatile. However, when you are in the midst of a rally in the price of gold, almost all gold stocks will be appreciating.
Investors are cautioned though; due to the nature of the gold-mining industry, the uncertainty with future mining operations, and the returns they will bring, it’s advised to diversify well in the gold mining space.
Below are two great gold miners that are poised to continue to break out during this current rally.
Kinross Gold (TSX:K)(NYSE:KGC) reported a solid first half of the year, with production costs and all-in sustaining costs well below its 2019 guidance. The costs were helped by strong production by the company as well as excellent cost-control performance.
More than 60% of the company’s production came from its three largest assets. Its Paracatu mine in Brazil, Kupol/Dvoinoye in Russia and Tasiast mine in Mauritania had a combined average cost of sales of just $607/ounce in the second quarter.
In the first half of the year, the company produced more than 1.2 million ounces of gold at an average realized price of more than $1,300. The all-in sustaining costs for the first half of the year was just $925/ounce, giving Kinross some solid margins.
It expects to do nearly 2.5 million ounces this year in production. Kinross is on pace to hit or exceed many of the main targets it set out in guidance which is very promising.
In addition, its operations are well diversified with 20% of production coming from Russia, 22% from West Africa, and the other 58% from the Americas.
The company has a lot of flexibility with its assets, having low-cost mine options such as the Fort Knox Gilmore, which is expected to have its mine life extended.
It also has plenty of growth projects in its pipeline. It’s currently advancing some low-risk projects in the Americas. It’s also begun to initiate production on the south side of its Bald Mountain property.
It’s currently at the highs of its 52-week range as gold continues to climb.
Detour Gold (TSX:DGC) is the other solid gold miner. To date, the stock is up almost 100% in the last 12 months.
Even with the major increase in stock price this year, due to the gain in gold prices, the CEO still believes that the price of gold is outpacing the shares, and that the share price still has a long way to go.
Production in the first half of the year was slightly higher than guidance, and the company said it expects to hit its targets with some slight beats on things such as production and all-in costs.
It produced more than 300,000 ounces in the first half of the year. The all-in costs of the gold were $1,093 against the company’s average realized gold price of $1,306. Detour is also quite financially sound with $200 million in cash and equivalents against just $250 million in long-term debt.
The last promising feature is management’s obsession with finding any business improvement they can, whether it be a reduction in costs or an improvement in efficiency.
Currently, Detour is deferring all non-essential capex, as the company focuses on maximizing the business for free cash flow.
Gold miners will perform their best when the price of gold is appreciating, especially rapidly. The gold-mining business is a risky one though, so it’s advised if you are going to get your feet wet, to diversify evenly among a few great companies to mitigate risk.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Daniel Da Costa has no position in any of the stocks mentioned.