Gold Miners: Our Coverage Is Expensive Despite Raising Our New-Term Gold Price Assumptions Again

After reaching another historical high around $5,400 per ounce in January, gold belied its safe haven status by falling 20% in response to the Iran war, before recovering to around $4,800 now. The fall was driven by ETF outflows: ETFs tend to be procyclical and the marginal buyers or sellers.

Why it matters: But gold is still up since we last updated our assumed prices. We now assume it averages $4,900 to 2028, from $4,700, based on the futures curve. Our assumed midcycle price remains about $2,050 from 2030 based on our estimate of the marginal cost of production.

• We also raise our Uncertainty Ratings for no-moat Newmont, Barrick, and Agnico Eagle to High, from Medium, consistent with our High ratings for no-moat Kinross, Northern Star, Evolution, and Perseus. All are highly leveraged to the gold price, which is the biggest driver of their fair values.

The bottom line: Increased near-term gold price assumptions drive no-moat Kinross’s fair value estimate up 5% to $10 per share. Our fair value estimates for no-moat Newmont, Barrick, and Agnico Eagle each rise 3% to $72, $31, and $93 per share, respectively.

• But foreign-exchange movements since our last update have broadly offset higher near-term gold prices for no-moat Northern Star and Evolution. Their fair values are unchanged at AUD 15 and AUD 4.70, respectively.
• Perseus’s estimate rises by 7% to AUD 3.20 per share after it surprised us by selling its troubled Meyas Sand project in Sudan for more than double our valuation, despite the ongoing civil war in the country.

Big picture: Our gold coverage is materially overvalued by about 40% to 240% as the market projects the very strong gold bull market in recent years to continue. Spot gold has tripled since September 2022, and is more than double our assumed long-term or midcycle price of around $2,050.

• It is also significantly above both historical prices and cost support.