Gold Stocks Still Look Cheap Despite Sector's Strong Run

Strategic Insights -

UK-listed gold miners have been dragged along on the industry's strong run, but according to UBS, they still look undervalued compared to their global counterparts. The GDX index, which tracks global gold miners, is up 45% year-to-date, outpacing the gold price itself by around 20%. However, UBS estimates that most miners are still pricing in gold at just $2,700 to $2,875 an ounce, a significant discount to current prices. This has led the bank to identify a number of UK-listed gold miners that it believes are still undervalued, including Endeavour Mining and Fresnillo.

Key Takeaways:

  • UBS estimates that most miners are still pricing in gold at just $2,700 to $2,875 an ounce, a significant discount to current prices.
  • The GDX index, which tracks global gold miners, is up 45% year-to-date, outpacing the gold price itself by around 20%.
  • Endeavour Mining PLC, one of the few FTSE-listed gold specialists, is among UBS's top European picks, trading at a multiple of just 4.3 times forward earnings.
  • UBS believes that Endeavour Mining's valuation is too low, given the company's steady production outlook and the metal's current trajectory.
  • Fresnillo PLC, better known for silver, also receives a fresh thumbs-up from UBS, with the company's valuation down to around 5 times EV/EBITDA, well below the long-term average of more than 10.
  • Streaming firms such as Franco-Nevada and Wheaton Precious Metals offer exposure to gold without the costs and complications of mining it, but are more expensive, trading at over 20 times earnings.

Statistics:

  • The GDX index is up 45% year-to-date.
  • Endeavour Mining PLC trades at a multiple of 4.3 times forward earnings.
  • Fresnillo PLC's valuation is down to around 5 times EV/EBITDA.
  • The long-term average valuation for Fresnillo PLC is more than 10 times EV/EBITDA.

Sources:

  • UBS: "Gold stocks are finally catching up, but there's more to go"