We recently compiled a list of the 10 Best Gold Mining Companies to Invest in. In this article, we are going to take a look at where Alamos Gold Inc. (NYSE:AGI) stands against the other gold mining stocks.
Gold has reached an all-time high, capping a 20-month rally with a 50% increase. Although the selling pressure from the retail investor would have an adverse affect on gold prices, however, this surge is driven by central banks buying record volumes of bullion mainly due to the desire to reduce dependence on US dollar, conflicts in the Middle East, and strong demand from Chinese consumers amid disappointing local equities, property, and currency markets. Furthermore, Chinese political leaders noticed that financial assets of the Russian government including bonds and reserves got confiscated by Western governments after Russia invaded Ukraine. Christopher Mancini, who co-manages Gabelli Gold Fund says “The Chinese central bank saw that happened and said ‘We don’t want that to happen to us.’ It would make sense for them to want to significantly retire their [U.S.] dollar reserves. With gold, they don’t have to worry about being repaid. We know they have been buying a consistent amount of gold every day.”
Bernard Dahdah from Natixis suggests central banks might continue buying gold due to tensions between the US and China, potentially making prices above $2,300 the new norm. The move to gold also reflects a broader trend of nations reducing their reliance on the U.S. dollar, prompted by the dollar’s use as a geopolitical tool against Russia, leading to gold prices reaching an all-time high of $2,480 per ounce on July 17, 2024. In U.S. the Fed is expected to cut the Fed funds rate, but inflation may remain steady, leading to lower real interest rates. This scenario benefits gold as the opportunity cost of holding non-interest-bearing gold decreases compared to cash and bonds. Additionally, a decline in U.S. real interest rates may weaken the U.S. dollar, making gold, which is globally priced in dollars, more attractive.
Owning gold directly provides a “store of value” but offers limited returns rather than generate substantial gains like equities. However, other than its appeal in its ability to preserve value, many investors view it as a hedge against economic troubles rather than a high-return investment. So an investor otherwise seeking gold as a soaring investment would be disappointed in the longer term as it doesn’t appreciate by much as gold has risen less than 300% in a century with annualized real returns of 1.34%, adjusted for inflation. Therefore investors looking for a more aggressive approach, aim for gold mining stocks that provide leverage to the gold price that yields returns surpassing those of the underlying commodity.
Despite this leverage, the underlying stock valuations will consider future cash flows and market volatility of the gold as well as the consensus price estimates by market participants. Nonetheless, gold miner stocks should be more volatile than gold itself, offering greater returns if the investor’s thesis on rising gold prices is correct.
Regardless of gold prices rising over the last 15 years, gold mining ETFs and major miners (Agnico, Newmont, Barrick) have underperformed compared to physical gold. Although some companies covered in this article have succeeded, the gold mining sector requires careful scrutiny beyond just reserves and production. Like any other investment that is carefully analyzed mining companies need to be analysed based on management, capital allocation, and geopolitical risk. It is also because of these factors that gold mining companies are unable to reach their potential as viable investments.
Methodology
To curate our list of 10 Best Gold Mining Companies to Invest in, we gathered a list of all companies using the holdings of gold miners ETFs. We then further narrowed down on the basis of their upside potential. With this let’s now jump to our list of the 10 Best Gold Mining Companies to Invest in.
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Aerial view of a gold mine with equipment mining the earth for resources.
Alamos Gold Inc. (NYSE:AGI)
Current Price: $17
Upside Potential: 19.3%
Alamos Gold Inc (NYSE:AGI) produced approximately 135,700 ounces of gold in Q1, marking a 6% increase from the same period last year and reported quarterly revenue of $280 million, a 10% increase from the previous year, and generated $24 million in free cash flow. The company is expanding its operations with the acquisition of Argonaut Gold’s Magino Mine, creating a Tier-1 scale mining complex in Ontario, Canada. This is expected to increase production to 600,000 ounces annually in the near term, potentially reaching 900,000 ounces long-term. This acquisition, including Argonaut Gold, is anticipated to generate $515 million in pretax synergies. Analysts predict Alamos Gold Inc will generate around $720 million in free cash flow by FY2028, driven by strong production at its PDA (Mulatos), Young-Davidson, Island Complex (Island/Magino), and Lynn Lake projects. Consequently, Wall Street analysts are optimistic about the stock’s future performance.
Overall AGI ranks 5th on our list of the best gold mining stocks to buy. You can visit 10 Best Gold Mining Companies to Invest in to see the other gold mining stocks that are on hedge funds’ radar. While we acknowledge the potential of AGI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AGI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.