The gold industry is a capital-intensive space comprised of companies involved in different steps of the production process, including exploration, development and full-fledged mining. The gold industry has long been viewed as a safe haven in times of geopolitical uncertainty, as gold investments have been used for both portfolio diversification and as a hedge against US currency weakness and high inflation. Gold was one of the first storehouses of value, and is an important mined commodity. Currently, over two-third of gold demand is accounted for by the jewelry sector, according to the Canadian Securities Institute. Other uses for gold include tooth fillings, electronics manufacturing and collectibles, although they make up a very slim portion of overall demand.
Gold prices rose to new highs in February 2019, driven by a weakened dollar and an easing of US-China trade talks. As risks around the trade war soften, a reduced appetite for the dollar has helped support gold prices, up to more than $1,325 per ounce. Negative headwinds for gold remain, including the US government shutdown, as well as degrading ore grades, technical issues, and strikes, per Transparency Market Research. Moving forward, investors seeking insight about the direction of the price of the precious metal will need to keep an eye on the US dollar. Speculating on the price of gold aside, investors should be extra cautious in dealing with these so-called "penny stocks,” given they are subject to greater swings in stock price and are riskier plays.
Here’s a look at the top performing individual gold penny stocks as of February 2019, based on the sector’s performance since the start of the year. The list here is presented in order of year-to-date (YTD) performance based on the closing stock price, as of December 31, 2018 and closing price as of Feb 16, 2019. The performance has been compared to the SPDR Gold Trust’s (GLD) returns of 2.9% year-to-date (YTD), and the S&P 500’s 10.7% return over the same period. This list includes companies with market caps between $87.7 million and $2.36 billion, with share prices below $5.
1. Tanzanian Royalty Exploration Corporation (TRX)
· Market Cap: $87.7 million
· YTD Stock Performance: 65%
2. Eldorado Gold Corporation (EGO)
· Market Cap: $636.7 million
· YTD Stock Performance: 45.1%
3. Sibanye Stillwater Ltd. ADR (SBGL)
· Market Cap: $2.36 billion
· YTD Stock Performance: 43.8%
Tanzanian Royalty Exploration Corp.
Tanzanian Royalty is a mineral resource company with exploration stage properties, which engages in the acquisition, exploration and extraction of gold and natural resources in the United Republic of Tanzania, Africa. The company has identified three development projects; Buckreef, Kigosi and Itetemia.
In January, the Canadian firm entered into subscription agreements for the sale of 3.92 million common shares, raising about $886,000 in the aggregate with two investors. The firm intends to use the proceeds to further its previously announced Three-Phase Drill Program at the Gold Buckreef Project in North central Tanzania, currently the company’s primary focus. Shares of Tanzanian Royalty have gained a whopping 75% over the one-month-period.
Moving forward, Tanzanian Royalty will give high priority to conduct drilling intended to confirm previously known strong intersections and grades from deep holes, and begin to test the deposit at depth for potential as an underground mine, per a company press release. “These next few months will be an exciting time for the company,” said CEO Jeffrey Duval. The firm will host its annual general meeting on February 28th.
Eldorado Gold Corp.
Eldorado Gold is a Vancouver-based mid-cap gold mining company with assets in Canada, Turkey, Greece, Romania, Brazil and Serbia. Eldorado’s operations involve all facets of mining, including exploration, development, production and reclamation.
Shares are up over 57% over the recent month, yet reflect a more than 25% decline in 12 months. At the end of January, the company posted an update with major implications, including a decision to resume a new mill project at its Kisladag mine in Turkey. According to the press release, since the advancement of the mill project, “gold recovery from the leach pad increasingly exceeded expectations.” Management expects the resumption of mining and heap leaching at Kisladag to offer Eldorado flexibility to improve its balance sheet this year.
Over the next three years, Eldorado expects annual gold production to rise to between 420,000 and 450,000 ounces, compared to the 349,147 ounces it achieved last year. It forecasts average annual AISC, or all-in sustaining costs, per gold ounce, between of $867 and $967, compared to the $990 per gold ounce which is booked in 2019, per a company announcement.
Sibanye-Stillwater was created by the merger of gold miner Sibanye Gold Limited and platinum group metals miner Stillwater Mining in May 2017. The company is the largest individual producer of gold from South Africa, one of the 10 largest gold producers globally, and is the third largest producer of palladium and platinum.
Shares have gained more than 52% in three months, yet have fallen nearly 9% over 12 months to $4.07. The company has yet to fully recover from a sell-off in shares following a material dilution of the stock back in 2017 when the company amassed billions in debt and issued $1 billion in stock at a 60% discount.
Moving forward, the company continues to combat issues including a significant number of accidents at its South African mines, which bring up safety concerns, as well as high costs in its gold business, with AISC at around $1,300 per ounce for 2018. What Sibanye does have going for it, however, is its unique production profile, with a split of gold and platinum group metals. The latter represents its more profitable business, and accounts for about 50% of its operations.
As the US dollar shows signs of weakening, thanks to an easing of fears regarding macro risks like trade tensions and other geopolitical risks, gold companies should continue to benefit from higher prices for the precious metal. That being said, the price of the commodity, and penny stocks in particular, can be highly volatile, implying potential for both big rewards and major downside risk. While these penny stocks usually follow the price of gold, mismanagement or an unforeseen event could also weigh them down. While these three gold stocks survived a rough patch in 2018, investors should perform as much due diligence as possible and proceed cautiously.