Gold mining companies are getting ready to do something they haven’t done in half a decade.
As precious metal prices have fallen steadily over the past few years, miners have been forced to cut back on costs and abandon new development projects. Now some analysts say mining companies are ready to pour money back into growth.
“This is something we haven’t seen in five years,” said Jessica Fung, a metals analyst at BMO Capital Markets. “It’s starting to look interesting again.” Many miners have decreased their debt and improved their ability to generate cash flow over the last couple years, which can now be used to revisit production plans, Ms. Fung said. This development, combined with a rally in precious metals, has redeemed mining companies for some investors.
As gold and silver have outperformed this year, the stocks of companies that mine the metals have surged. Newmont Mining is the best performing stock in the S&P 500, up more than 85% year to date. Freeport-McMoRan is second, having risen 63% year to date.
Goldman Sachs, which has been notoriously bearish on gold prices, believes that the time is right for miners to re-evaluate growth prospects.
“We don’t think it is too early to start talking about growth. We believe we are potentially at the start of another upward cycle for the gold sector,” bank analysts said in a Tuesday research note.
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