U.S. equities started 2016 very poorly. Gold mining penny stocks, though, have held up well.
While stocks have staged a remarkable comeback since the middle of February, the outlook for the stock market remains weak. That’s because there is an abundance of risk out there. In this chaotic environment, investors need to take a look at gold miners, even after the recent surge in gold prices. Some of the best gold miners out there right now are trading in penny stock territory. And are poised for serious growth in the coming months.
Lots of Reasons to Be Bullish on Gold
Gold has made some serious moves over the last three months. Trading near $1,245 per ounce, gold prices are up nearly 18.0% since the beginning of 2016. Gold is often viewed as a hedge against economic uncertainty. As a result, it has a negative correlation to the stock market.
While stocks were circling the drain over fears of an economic slowdown in China, a global recession, negative interest rates in Japan and many European countries, plunging commodity prices, and geopolitical tensions…gold was enjoying a resurgence.
Even though stocks have mounted a comeback since the middle of February, the price for precious metals has held strong. The 50-day moving average for gold crossed above the 200-day moving average at the end of February and remains bullish.
Since 2001, gold prices have flashed 10 golden crossovers. The golden crossovers in 2001, 2004, 2005, 2006, and 2009 all rewarded gold bugs. That said, the golden crossover in 2012 and 2014 failed to really materialize.
What about this time? The most recent golden crossover might not predict a long-term run on gold bullion prices, but when it comes to stocks, there is a lot more downside than upside right now:
- Economic weakness in China
- Tepid global economic growth
- Growing adoption of negative interest rates
- Weak underlying fundamentals in the U.S. economy
- Terrible earnings from S&P 500 companies
- Federal Reserve holding tight on interest rates
- The chance Trump could become president
- Geopolitical tensions
…all of which is bullish for gold.
3 Gold Mining Penny Stocks That Could Easily Double
Gold has made some solid moves since the beginning of 2016, but there is still plenty of upside. You just have to decide if you like the idea of physical gold or gold mining stocks. For reference, the spot price for physical gold is up around 18% year-to-date. Gold miners, on the other hand, have surged more than 45%.
Coeur Mining Inc (NYSE:CDE) is the largest U.S.-based primary silver producer and significant gold producer with mines in North America, South America, and Australia. The company produces around 18 million ounces of silver and more than 226,400 ounces of gold annually. (Source: “Fact Sheet,” Coeur Mining Inc, March 22, 2016.)
In 2015, silver production was 15.9 million ounces, at the high end of the company’s guidance. Gold production was 327,908 ounces, in line with company guidance and 31% higher than 2014. Adjusted all-in sustaining costs were $14.32 per realized silver equivalent ounce, a 22% reduction from 2014. (Source: “Fourth Quarter and Full-Year Results,” Coeur Mining Inc, February 10, 2016.)
Currently trading near $5.80 per share, Coeur Mining Inc’s share price is up 122% in 2016.
Harmony Gold Mining Co. (ADR) (NYSE:HMY) has operations in South Africa and Papua New Guinea. The company has mineral reserves of 42.6 million ounces and resources of 110.3 million ounces. (Source: “Harmony Investor Brief,” Harmony Gold Mining Company, March 22, 2016.)
In fiscal 2015 (ended June 30, 2015), Harmony produced 1.08 million ounces of gold, making it the third-largest gold producer in South Africa and the 12th-largest in the world. In fiscal 2016, the company expects to produce 1.1 million ounces of gold. (Source: “Corporate Profile,” Harmony Gold Mining Company, March 22, 2016.)
To date, Harmony is exceeding its annual guidance. In each of the last three quarters, it has increased production, going from 245,697 ounces in the third quarter of fiscal 2015 to 256,456 in the fourth quarter and on to 281,385 in the first quarter of fiscal 2016 and 287,074 in the second quarter.
Harmony Gold Mining is currently trading near $4.00 per share and is up 280% year-to-date.
Nevsun Resources (TSE:NSU) engages in the acquisition, exploration, development, and operation of gold, copper, zinc, and silver properties in Africa. Its flagship property is the Bisha Mine located in Western Eritrea, North-Eastern Africa.
This year (2016) is expected to be a transitional year for the company, as its operation moves into the primary ore body at Bisha, adding zinc concentrate production to revenues. The zinc expansion project will commence ore commissioning in the second quarter.
Overall, in 2016, Nevsun expects to produce between 80 million and 110 million pounds of copper and 70 million and 100 million pounds of zinc, as well as monetize between 80,000 and 100,000 gold equivalent ounces from stockpiles. (Source: “Nevsun 2016 Outlook,” Nevsun Resources, February 11, 2016.)
With a strong balance sheet, a market cap of $684 million, $434 million in cash, zero debt, and an annual dividend of 4.75% (or $0.16) per share, Nevsun is one gold mining penny stock to watch.
Nevsun is trading up 45% since the beginning of 2016 at $3.45 per share.