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Profit from Market Fear and Buy This Gold Miner Today

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Editor’s Note: A previous version of this article stated that Newcrest owned 27% of Lundin Gold. This has been updated to reflect the December 2019 increase to 32%.

The coronavirus outbreak has triggered considerable fears that a global recession is imminent, with some analysts predicting that global economic growth could be cut in half. Indeed, gross domestic product is predicted to expand by a modest 1.5% during 2020, creating an environment of fear that sees many investors fleeing stocks for the ultimate safe haven asset, gold.

This has seen the yellow metal gain a healthy 8% for the year to date to be trading at over US$1,630 per ounce, a boon for gold miners, with many anticipating that gold would trade at around US$1,500 an ounce during 2020.

One miner that every investor should consider adding to their portfolio is Lundin Gold (TSX:LUG). The development stage miner, which produced its first gold toward the end of 2019, has gained a stunning 40% since the start of 2020 and there are signs of further gains ahead, even if gold softens due to profit taking.

Quality asset

Lundin Gold is advancing one of the largest scale high-quality gold deposits currently under development globally. The Fruta del Norte or body in Southern Ecuador has been determined to have gold reserves of five million ounces with an impressive average grade of 8.74 grams of precious metal (g/t) per tonne of ore.

That last point is important to note because the higher the grade, the more economic it is to extract the gold from the surrounding minerals, seeing Furta del Norte have average all-in sustaining costs (AISCs) of US$621 per ounce of gold produced.

This highlights just how profitable the operation will be amid an operating environment where gold is trading at over US$1,600 an ounce.

The mine is over 99% complete and conducted its first gold pour in late 2019 to see it producing 28,678 gold ounces during the year. Fruta del Norte is expected to begin commercial production during the second quarter 2020 and produce around 300,000 gold ounce this year.

Gold output is expected to rise to over 400,000 ounces for next year and 2022, and overall life of mine average production is anticipated to be 325,000 gold ounces annually.

The Fruta del Norte property holds considerable exploration upside, with its probable gold reserves only representing 67% of indicated resources. The ore body also has yet to be fully defined to the south, meaning that it’s very likely that gold discoveries will occur, leading to higher reserves that will extend the life of the mine beyond the 14 years originally forecast.

Lundin Gold finished 2019 with almost US$76 million in cash, boding well for its ability to complete the mine and commence commercial production as planned.

The miner also has Australian senior gold miner Newcrest as a major shareholder, with it owning a 32% stake in Lundin Gold. That further minimizes the execution risk associated with completing mine construction, commissioning the mine and declaring commercial production.

These factors highlight why Lundin Gold will soar higher once Furta del Norte is commissioned and commercial production successfully commences.

Foolish takeaway

Lundin Gold is a top pick for investors seeking to profit from market fear and higher gold. The miner is on track to start commercial production during the second quarter of 2020, and there is every indication that its stock will soar once it commences, particularly if gold remains above US$1,600 per ounce.

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Fool contributor Matt Smith has no position in any of the stocks mentioned.

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