RBC Analysis Risk-Reward for NA Gold Producers in an Uncertain Gold Price Environment
With gold stocks under pressure, RBC CM believes this presents an opportunity to buy gold equities with an attractive risk-reward. In RBC CM’s view, at sharply lower gold prices, the most resilient North American gold producers with solid, yet flexible business plans would be Goldcorp (G), Yamana Gold (YRI), Agnico-Eagle (AEM), New Gold (NGD), Randgold Resources (RRS), Alamos Gold (AGI), Dundee Precious Metals (DPM), Argonaut Gold (AR), and Timmins Gold (TMM) with low net debt, low capital spending to cash flow ratio, and significant new mine development recently completed. Within RBC CM’s coverage universe, the gold companies with the most robust business models that are the best-positioned to weather a sharply declining gold price environment, in our view, would be the royalty and streaming companies, including Silver Wheaton (SLW), Franco-Nevada (FNV), Royal Gold (RGLD), Sandstorm (SSL) and Premier Royalty (NSR), which have minimal operating costs and no significant capital cost exposure.
A $1,200/oz gold price has a significant negative impact on the cash position for the North American gold producers, which could force companies to draw down on credit facilities, cut capital spending, seek new capital to complete existing projects, place high-cost operations on hold, and/or cut dividends