The Gold Miners Index (GDX) has suffered a sharp correction since its August highs as the price of gold (GLD) has reversed sharply lower after hitting a new all-time high above $2,050/oz. Fortunately, the $150/oz correction in the yellow metal has not damaged the fundamentals of these miners, as the average realized selling price across the sector in Q2 was $1,805/oz, 6% lower than where we’re sitting even after this correction. This means that even though the miners have fallen precipitously, their margins have actually improved, and their valuations have become even more compelling. This article takes a look at three miners that are trading at dirt-cheap valuations, especially considering their strong double-digit earnings growth rates expected in FY2021.
While Yamana Gold (AUY), Kirkland Lake Gold (KL), and Pretium Resources (PVG) have differing production profiles and little in common other being gold miners, they do share one common trait: explosive earnings growth. The three companies are expected to grow annual EPS at an average growth rate of 42% next year, based on preliminary and conservative FY2021 estimates. Meanwhile, the three companies are trading at a median forward P/E ratio of 15.94, a multiple that’s more synonymous with low growth companies with saturated growth. Therefore, I believe this correction in these names is an opportunity, especially as these companies get ready to report their best earnings on record in Q3. Let’s take a look at the three companies below:
Beginning with Kirkland Lake Gold (KL), the company recently completed the acquisition of Detour Gold, and has transformed itself into a 1.5 million-ounce gold producer, from a 900,000-ounce producer last year.