The Fed was more hawkish than expected at its meeting which caused gold to sell off. However, interest rates moved lower, and the yield curve flattened. Both are positive developments for gold. Taylor Dart identified 3 gold miners worth buying on the dip: Pretium Resources (NYSE:PVG), Newmont Corporation (NEM), and Wheaton Precious Metals (NYSE:WPM).After a brief period of outperformance vs. the major market averages, the precious metals complex has been hit hard again this week, with gold (GLD (NYSE:GLD)) down more than 5% for the week. This violent pullback is one of the worst we’ve seen in years, given its velocity. Fortunately, it’s provided a second opportunity to start positions in miners at very reasonable valuations. While the gold price falling $125/oz certainly doesn’t help margins for miners, it’s important to note that most miners are producing gold for less than $1,025/oz, still enjoying 40% plus margins at current gold prices. Let’s take a look at a few names that look compelling if this weakness continues:
The Gold Miners Index (GDX (NYSE:GDX)) is one way that investors can play the precious metals sector to gain leverage on gold. However, I prefer individual names since the index often has many laggards that can impede its overall performance, and it doesn’t pay a material dividend. Three names that look like standouts among their peers are Pretium Resources (PVG), Newmont Corporation (NEM), and Wheaton Precious Metals (WPM), with the latter two being clear leaders in their sub-sectors. All three of these miners differ in size and risk, but all three look like solid bets as sellers rush for the exits following the recent beatdown in the gold price. Let’s begin with WPM:
Wheaton Precious Metals is one of the largest royalty & streaming companies globally and is one of the lowest-risk ways to play the sector, given that the company has extremely high margins above 70%. Its business model of financing miners to build or expand their projects and then take a cut of their production is superior to most gold miners. This is because the company has diversified revenue across dozens of assets and significant upside as new royalties come online, or mines are extended past their initial expectations. The company just came off a strong quarter in Q1 from a financial standpoint with a record revenue of $324.1MM, with the company benefiting from a 13% increase in its gold sales price and a 53% increase in its silver sales price. This has set the company up for a year of significant annual earnings per share [EPS], especially as its mines ramp back up after what was a disrupted 2020 due to some temporary COVID-19 related shutdowns.