The price of gold has been mostly range bound since early August after it shot up nearly 20% since the end of June. What is interesting is that a lot of the negative news has gone away, yet the price of gold has stayed relatively flat.
Even this week, we are getting in solid earnings from a lot of U.S companies, which sent the S&P 500 to new highs, and gold barely budged.
All this is signalling that many in the market, though they may not think the bull market is over, know the end is near, and so consequently the price of gold hasn’t had any investors looking to take profits.
Though the price of gold hasn’t come down to offer a nice big discount, the current range it’s trading in, still offers investors a chance to get exposure before gold’s rally continues.
B2Gold has a number of mines all across the world that are all located near or south of the equator. It has two mines in Nicaragua and one in Colombia.
In Africa, it has a mine in Mali, a mine in Namibia, and an exploration project in Burkina Faso. Lastly, in South Asia, B2Gold has a mine in the Philippines.
B2Gold has a strong operations history since its early days in 2007. Each year since, it has increased its production and now produces just under a million ounces a year, at roughly 950,000 ounces in annual production. The company has growth plans to break the million ounce a year mark in 2020.
While it has increased production, which has increased its scale, it has also worked to bring its operating costs down, driving its all-in sales cost (AISC) per ounce from north of $1,000 in 2012 to just over $750 in 2018.
B2Gold estimates that at average gold prices of $1,500 in 2019, it can do roughly $1.3 billion in revenue and $500 million in operating cash flow.
B2Gold has been spending a lot of its cash to reduce debt, which it’s made great progress in doing since 2017, and it projects by the end of 2019 and with another $200 million in reductions, the company’s debt should be just $280 million.
This would give the company a debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio of just 0.6 times.
The company is well capitalized and has put itself in a position of strength, and with the increase in gold price’s it should be one of the best performers on the TSX.
Yamana reported earnings last week and, as was expected, it benefited heavily from the increase in gold’s price.
Its numbers were a little skewed due to larger-than-usual development and sustaining costs in the third quarter. Despite that, Yamana still managed to report net earnings north of $200 million on 210,000 ounces of gold production and 2.5 million ounces of silver production.
The increase in the price of gold clearly made a material difference, and on top of its $200 million in earnings, it increased cash from operating activities by 144% over the same quarter last year.
It was a busy quarter for the company, as it also made $800 million in debt repayments. This reduced its total net debt by 46% just in the quarter, down to roughly $950 million, and brings Yamana closer to its target of one times net debt to EBITDA.
The debt reduction puts Yamana in a much stronger position and adds flexibility right as the price for gold is beginning its rally.
It also announced a dividend increase of 100% this quarter, bringing its dividend yield to roughly 1.1%.
Finding quality gold stocks that can convert the increase in gold’s price to profits on the bottom line is key for investors. With both B2Gold and Yamana, you get this quality execution, and for investors patient enough, they will be rewarded handsomely.
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Fool contributor Daniel Da Costa has no position in any of the stocks mentioned.