The gold spot price has remained steady at 8-year highs of around US$1,704 per ounce. Furthermore, the combination of a weak Australian dollar and an elevated gold spot price has created very healthy margins for Aussie gold miners.
Given its safe haven and hedging characteristics, could gold shares in the S&P/ASX 200 Index (ASX: XJO) provide investors with both a defensive asset and safe returns?
Let’s take a look at 3 mid to top-tier ASX gold miners.
Saracen Mineral Holdings Limited (ASX: SAR)
Mid-tier producer Saracen has largely been unaffected by COVID-19. Proactive control measures including longer fly-in fly-out rosters, additional charter flights and buses to support social distancing, and reduced capital works have allowed the company to operate in a business as usual manner.
In the company’s March quarter update, it highlighted record quarterly production thanks to its first full quarter contribution from its KCGM acquisition. I believe Saracen is in a strong position moving forward given its 7-year track record of meeting or beating guidance and is currently tracking ahead of FY20 guidance.
With a globally renowned Super Pit acquisition under its belt and a moderate price-to-earnings ratio of 34, Saracen may represent good value at today’s prices.
Northern Star Resources Ltd (ASX: NST)
Northern Star Resources is likewise a growth engine following the joint acquisition of KCGM. Some of its COVID-19 related measures resulted in temporary reductions in production, leading to increases in unit costs in the March quarter. However, Northern Star expects improved performance in the June quarter.
That said, it still experienced quarter-on-quarter improvements in both gold production and costs per ounce. As it stands, the March quarter had an average all-in sustaining cost (AISC) of A$1,590/oz, with the current spot price at the time of writing at A$2,637.5.
If investors feel uneasy buying Saracen which is currently at record all-time highs, Northern Star may be the alternative growth-orientated gold miner to consider.
Evolution Mining Ltd (ASX: EVN)
Evolution Mining is widely regarded as the lowest cost producer alongside Newcrest Mining Limited (ASX: NCM). In its March quarterly report, it highlighted no material impact from COVID-19, but group gold production had declined 3% quarter on quarter.
The company remains confident that it will meet its FY20 gold production guidance of around 725,000 ounces at an AISC at the top end of guidance of A$990/oz.
Evolution noted that should current spot metal prices be maintained during the June quarter, net cash flow is expected to be $90 million to $95 million higher, but AISC would be negatively impacted by A$20 to $25/oz due to higher royalties and lower by-product credits.
I believe gold miners are an excellent alternative sector to consider for their defensive characteristics. Investors should also check out our free report for other growth opportunities to boost portfolio returns today.
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More reading
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- How can the ASX 200 soar with rising unemployment?
- ASX 200 down 0.9%: CBA reveals $1.5bn COVID19 provision & gold miners charge higher
- Why CBA, CSR, Fortescue, & Northern Star shares are pushing higher
Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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