Rising concerns over the possibility of a bear market could make Newcrest Mining Ltd (ASX: NCM) or Evolution Mining Ltd (ASX: EVN) solid investments for 2019.
Why Gold?
Gold miners tend to outperform during bear markets (i.e. when financial markets are falling). While some investors buy gold bars to store in their safe (or bury in the backyard) as a hedge against falling share prices, it can be much simpler to purchase shares in gold miners instead.
I am not holding any gold shares, but I can certainly see that they have a place in a diverse portfolio, especially as concerns grow that a bear market could be on the way. Here are three of my favourites.
Newcrest Mining Ltd (ASX: NCM)
Newcrest is the ASX blue-chip of gold miners, with a market capitalisation of more than $19 billion. In the first half of FY19, Newcrest produced 1.2 million ounces of gold, making it one of the world’s largest gold miners. In the same period, profit grew 142% and they recorded a record-low All-In Sustaining Cost (AISC) of $747 per ounce.
If you want to invest in gold miners as a hedge, it makes sense to invest in the largest and most reliable companies. For information on their latest acquisition, check out this article.
Northern Star Resources Ltd (ASX: NST)
Another sizeable company, Northern Star has a market cap of more than $5 billion. Northern Star also experienced growth in 1H19, with revenue up 43% to $633.5 million and profit of $82.1 million. During the period, they sold 423,000 ounces of gold and generated an industry-leading return on equity of 20% on an annualised basis.
Over the last 12 months, their share price is up around 30%, making Northern Star one of the fastest growing ASX 200 companies.
Evolution Mining Ltd (ASX: EVN)
While Evolution had a tough 1H19, with profit after tax down 31.4% and earnings per share down 1.9%, I think there are still a couple of reasons to consider this company.
FY19 guidance includes production of 720,000-770,000 ounces, placing it among the largest gold miners. On top of that, Evolution’s balance sheet shows a net bank debt position of $41.4 million and a cash balance of $313.6 million. During the half, Evolution reduced their gearing to 1.4%. So, although results were down compared to Newcrest and Northern Star, Evolution is taking on less debt to achieve their results.
Evolution also currently has a dividend yield of 2.05%, compared to Northern Star’s 1.26% yield and Newcrest’s 1.01%.
Summary
The purpose of a hedge is to reduce risk, not to add it. So, if you’re going to be investing in gold miners, stick to the largest companies and avoid small, speculative mining stocks. These should be incorporated with a range of other investments in different industries for a diverse portfolio.
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Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.