The COVID-19 panic, combined with the excess money and liquidity entering the global economy, has acted as jet fuel for the gold spot price. However, in recent weeks the gold price has cooled down and consolidated around the US$1,950 mark.
With the US Federal Reserve taking interest rates to zero for the foreseeable future and continuing monetary stimulus, could this be an opportunity to top up on gold mining stocks?
Here we explore 3 ASX gold shares and why they might be worth a closer look today.
1. Evolution Mining Ltd (ASX: EVN)
Evolution is one of the lowest cost ASX gold mining stocks. This positions the company to greatly benefit from the recent surge in gold price. The company delivered a record FY20 financial result with its underlying net profit after tax (NPAT) soaring 86% to a record $405.4 million and 746,463 ounces of gold produced (FY19: 753,001 ounces) at an all-in sustaining cost (AISC) of A$1,043 per ounce. Looking ahead, the group provided the following outlook for the next 3 years:
- FY21: 670,000–730,000 ounces at an AISC of A$1,240–A$1,300 per ounce
- FY22: 700,000–770,000 ounces at an AISC of A$1,220–A$1,280 per ounce
- FY23: 790,000–850,000 ounces at an AISC of A$1,125–A$1,185 per ounce
This represents a modest increase in production, which will be largely driven by the commencement of its Cowal underground mine in late FY22. Evolution is more cost-focused compared to other ASX gold mining stocks that have turned to acquisitions for growth. Its low costs mean great margins, even if the gold price were to weaken from today's levels. At a price-to-earnings (P/E) ratio of just 20, I believe Evolution shares represent both good value and a defensive hedge.
2. Northern Star Resources Ltd (ASX: NST)
Strategic acquisitions to propel growth has been the name of the game for Northern Star. First, it acquired Canadian mine 'Pogo' in 2018 and then Australian mine 'KCGM' in late 2019. The company's FY20 result saw strong cash flows with the finalisation of Pogo in FY20, and the miner expects KCGM's cash flow to increase with full 12-month contribution in FY21.
The company delivered a 69% increase in underlying profit after tax and announced a final and special dividend of 19.5 cents per share. Northern Star does not boast a significantly higher valuation than the likes of Evolution, trading at a P/E of approximately 26. I believe the company will continue to realise production efficiencies, increases in gold reserves and cash flows from Pogo and KCGM in FY21.
3. Saracen Mineral Holdings Ltd (ASX: SAR)
Likewise, Saracen also recorded an explosive year of growth following its joint acquisition of KCGM with Northern Star. In FY20, the company delivered a 93% increase in revenue, 105% increase in NPAT driven by a 47% increase in gold production to 520.4 koz at an AISC of A$1,104/oz. Its FY21 guidance points to 600–640 koz at an AISC of $1,300-1,400/oz.
I believe Saracen represents the best value of the 3 ASX gold shares, given its history of strong growth. Trading at a P/E of just 21 with an near-term goal of reaching 800 koz production, this could be the gold stock to own for both capital gains and hedging.
