What are we screening for?
North American-listed gold mining companies with strong earnings quality.
The Screen
After increased volatility in July and August, equity markets are entering September in a guarded state, with several key economic indicators being released this week, including the ISM Manufacturing PMI (Purchasing Managers’ Index) – which came out Tuesday and edged higher in August – and U.S. non-farm payrolls, which will come Friday. These figures could influence an expected Sept. 18 rate cut by the U.S. Federal Reserve.
Polling data from Reuters suggest the Fed could deliver up to three rate cuts of 25 basis points each by year’s end. A rate cut could be a catalyst for equity markets in September, which historically has been a poor month for North American equities. September returns over the past five years for the S&P 500 Index has averaged minus-4.23 per cent, while the S&P/TSX Composite Index has averaged minus-2.37 per cent The U.S. economic data and outlook from the Fed could also affect commodity markets, specifically gold, which is currently hovering below US$2,500 an ounce and is up more than 28 per cent over the past 12 months. Increased geopolitical risks, coupled with central bank purchasing from Turkey, China, and India, which were the top buyers of gold in the first half of 2024, have helped prices remain strong. Today, we screen for North American gold mining companies with strong earnings quality.
- First, we screen for North American-listed gold mining companies with a market capitalization greater than US$1-billion.
- Next, we screen for companies with high earnings quality. We use the LSEG Starmine Earnings Quality model to screen for companies with an Earnings Quality Score greater than or equal to 90, representing the top 10 per cent of companies. The Earnings Quality model is a percentile ranking of stocks based on the sustainability of earnings, with 100 representing the highest rank, and has four components: accruals, cash flow, operating efficiency and exclusions.
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What We Found
The screen, ranked by StarMine Earnings Quality Model, produced seven companies with six of these listed on the TSX.
Lundin Gold Inc. LUG-T, which scored 97 on the Starmine Earnings Quality model, is a Canadian-based company that owns the Fruta del Norte gold mine in southeast Ecuador. The company reported second-quarter results in August, and delivered gold production of 133,062 ounces, with an all-in sustaining cost (AISC) of US$875 an ounce, generating US$112-million in adjusted free cash flow. Lundin has been focused on improving their financial position and ended the second quarter of 2024 with no long-term debt, while also increasing their quarterly dividend to 20 US cents a share, making it one of the higher-yielding gold stocks. Lundin is forecasting gold production of 474,000 to 525,000 ounces in 2025 and 2026 and expects their AISC to be between US$840 to US$910 an ounce in 2024, and US$780 to US$850 an ounce in 2025, which should result in strong earnings given the outlook for gold. The company announced strong drilling results from Bonza Sur deposit, which is located south of the Fruta del Norte mine, and is expanding their near-term drilling program at this deposit. Positive results from this increased drilling could increase Lundin’s gold reserves and add to the company’s existing low cost resource base, boosting future earnings.
SSR Mining Inc. SSRM-T, which scored 91 on the Starmine Earnings Quality model, was the sole U.S.-listed company to make the screen. SSR Mining is an intermediate gold producer with assets in four countries, including Turkey, Canada, Argentina and the United States. Production at the company’s Copler mine in Turkey has been suspended following a landslide that occurred on Feb. 13 and management has withdrawn its 2024 and long-term guidance forecasts for the mine. SSR Mining delivered consolidated production of 76,100 gold-equivalent ounces (GOE) with an AISC of US$2,116 an ounce in the second quarter across its three producing assets, and all three are on track to achieve their 2024 guidance of 340,000 to 380,000 GOEs. The company will likely face some near-term headwinds including increased remediation costs related to the Copler incident, and a precautionary suspension of operations at the Seabee mine in Saskatchewan in August owing to forest fires, both of which could dampen earnings.
Investors are advised to do their own research before trading in any of the securities shown.
Stephen Donovan, MBA, is a sales specialist covering commodity markets at LSEG.