The coronavirus outbreak is raising fears of a global economic meltdown. Expect market volatility to remain elevated until the containment of the epidemic arrives. Investors are therefore once again preparing to shift to safe haven assets or precious metals.
Gold prices in particular are up 9.5% year to date and have gained 25.7% in the trailing 12 months. For this reason, Kirkland Lake Gold (TSX:KL)(NYSE:KL) and Silvercorp Metals (TSX:SVM)(NYSE:SVM) are appearing on investors’ radars.
Kirkland is likely to benefit from the gold uptrend through 2020, especially with the heightened volatility and global uncertainty. There is an opportunity for the share price of this $13.35 billion Canadian explorer and gold miner to move up along with the rising price of the yellow metal.
The 37-year old gold mining company is a growth king. The locations of its operations are in northeastern Ontario, Canada, and in Victoria, Australia. Last year, the gold production of 974,615 ounces was a record. It was consistent with the 2019 guidance, and 35% better than the 723,701 ounces of gold mined the previous year.
Because of its strong gold sales volume last year, Kirkland was able to deliver $463 million of robust free cash flow. It represents an 81% year-over-year increase. Also, the operating cash cost went down by 21.5%.
The healthy gains were the result of increased volume and prices as well as lower production costs. Based on forecasts, Kirkland’s revenue should be increasing by 74% in 2020 or $2.4 billion in absolute amount.
I would understand if there is less interest in Silvercorp at this time. The key assets of this $820.44 million miner of silver and related mineral properties are in the Ying mines in the Henan province of China.
Nevertheless, Silvercorp is beating industry peers in terms of costs, margins, and cash flow. The plan for future growth is also ambitious. As a backdrop, the initial capital investment in the said Ying mines back in 2004 was a measly US$5 million.
Today, Silvercorp is the largest Western-listed producer of silver in China. You can say that it’s an exceptional entrepreneurial success. Since the founding of the high-grade assets, the company was able to generate profits of US$468 million. The efforts of Founder and CEO Dr. Rui Feng are paying off handsomely.
The financial results in Q3 fiscal 2020 are impressive. There were 20%, and 17% increases in the average realized selling prices of gold and silver, respectively. Zinc sales grew by 103%, while lead posted a 6% increase in sales. The gross profit margin was a high of 42% for the quarter.
The annual growth estimate of 340% in the next five years is unbelievable. However, Silvercorp has proven its ability to produce quality assets and generate massive cash. The company has more than US$135 million cash reserve and short-term investments ready for deployment should the need arise.
Kirkland and Silvercorp are the top-notch mining stocks on the TSX. Current shareholders in both are holding on to their shares for good measure. If you’re looking for safe haven assets in a virus-plagued market, you have two excellent investment choices.
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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 Christopher Liew has no position in any of the stocks mentioned.