Gold equities on serious sale

As per our research last month, we believe Gold is heading (much) higher. In that note, we discussed in detail at how the commodity traded in the 1970s. We view the current macro backdrop as bullish gold even in a recessionary scenario and we argued the downside in a recession would be limited to c$2500/oz (-19% from peak) before re-rating hard after.

We estimate that mid and smaller cap gold producers and developers run by quality management already discount today a gold price sub $2500/oz.

Gold price discounted in equities peer group (USD/oz), and average

Source: Asymmetric Research

Meanwhile, the upside to fair value is significant on a conservative bull-case. At say $3300/oz gold, and factoring in a 1.3x NAV multiple (recall that the NAV multiple for North American peers since 1985 averaged at a higher 1.5x) the average upside of the peer group is 300%.

Gold equities peer group valuation upside to NAV in bull-case scenario

Source: Asymmetric Research

In sum the risk/reward of the equities is particularly appealing, in our opinion.

Gold equities peer group upside to NAV in bull-case scenario vs gold price currently discounted in shares (USD/oz)

Source: Asymmetric Research

Dakota Gold screens especially well. Gmining less so given its strong share price performance. We like GGP, with imminent big cashflow generation from Telfer, its low costs, and a management team which has successfully delivered on asset consolidation and optimisations in the past. Equinox gold offers large leverage to the gold price, but prices-in a higher gold price comparatively and the market awaits the outcome of the merger. McEwen has had operational issues in the past few years, but at these gold prices, the business should surprise to the upside and with potentially, transformational additional upside from its copper asset.

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These are our views only and not investment advice. We own shares in Dakota Gold, Equinox Gold, GGP and McEwen. We have not been paid by the companies for this research nor have they seen it prior to publication.