Investing in mining stocks can help you diversify your portfolio and lower overall risk. Mining companies are cyclical and can help shareholders derive outsized gains when commodity prices rise. Alternatively, you can also gain exposure to precious metals such as gold, silver, and copper by investing in mining companies.
Gold has been viewed as a store of value and hedge against inflation, as it has delivered consistent returns over time. The prices of the yellow metal and interest rates have an inverse relationship. For example, gold prices rise when interest rates fall and vice versa.
It’s quite possible that the federal reserve will start lowering interest rates by the end of 2024 once inflation is brought under control, which should act as a catalyst for gold.
Keeping these factors in mind, here are two gold mining stocks investors can consider buying today.
SSR Mining stock
Valued at a market cap of $4 billion, SSR Mining (TSX: SSRM) stock has returned 154% to investors in the last 10 years after adjusting for dividends. In comparison, the TSX index is up 128% since August 2013.
In the first six months of 2023, SSR Mining has returned $74 million to shareholders via its dividends and share buyback program. It is on track to return over $100 million to investors for the third consecutive year. Moreover, its full-year capital yield is forecast at 3.4%, given it an annual dividend payout of $0.37 per share.
SSR Mining ended Q2 with $410 million in cash and total liquidity of $700 million. The company expects to report positive free cash flow in 2023, allowing it to invest in capital projects and lower balance sheet debt.
Priced at 13.4 times forward earnings, SSR stock is really cheap, given adjusted earnings are forecast to rise 65% annually in 2023. Analysts tracking the mining stock remain bullish and expect shares to surge over 50% in the next 12 months.
Franco-Nevada stock
Among the top-performing TSX stocks, Franco-Nevada (TSX: FNV) has returned almost 400% to shareholders since August 2013. A gold-focused royalty and streaming company, Franco-Nevada operates through its mining and energy segments.
Generally, royalty companies receive a fixed percentage of sales generated by mining properties. With an asset-light model, Franco-Nevada and its peers enjoy higher profit margins compared to traditional mining companies. Franco-Nevada ended Q2 with an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin of 83.5%.
It has also increased sales from $150 million in 2008 to $1.8 billion in 2022, while adjusted earnings have surged from $0.5 per share to $4.93 per share in this period.
Franco-Nevada earns 79% of its revenue from precious metals and 89% from the Americas. Moreover, its business model benefits from a rise in commodity prices due to a consistent cost structure. Due to high profit margins, Franco-Nevada pays investors an annual dividend of $1.81 per share, indicating a yield of 1%. These payouts have risen by 22% annually in the last 10 years.
Priced at 39 times forward earnings, FNV stock trades at a premium. But analysts remain bullish and expect shares to rise over 15% in the next year.
