Should you buy Kinross Gold or Yamana Gold Stock now?
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Gold is on the rise again and investors are wondering what major gold stocks might be undervalued right now.
Prospects for gold in 2021
Gold is trading at nearly US $ 1,800 an ounce at the time of writing. That’s up from US $ 1,700 at the end of March, but still well below the 2020 peak of around US $ 2,080 it hit last August.
The recent momentum is likely due to the decline in US Treasury yields, which fell from 0.51% last summer to 1.75% at the end of the first quarter of 2021. Gold does not pay dividends or pay dividends. interest, so the opportunity cost of owning the metal increases when bond yields rise.
The yield on the 10-year US fell back to 1.58%. A drop in yield over the past three weeks has helped fuel the rebound in gold. Going forward, bond prices may continue to recover, pushing yield further down. Inflation fears fueled the initial push and will continue to play a role in the market, but the bond market sell-off was likely overdone.
Interestingly, gold is often considered a good hedge against inflation. Massive stimulus packages could trigger the global economy to overheat and push up prices around the world. Consumer products companies in the United States have already warned that they will raise prices this year to offset rising raw material costs.
In the event that inflationary fears rise again, gold may find a new supply as a place to protect wealth. This could neutralize the headwind that would result from a potential rise in Treasury bond yields if the market believes the US Federal Reserve could be forced to raise rates earlier than expected.
A short-term catalyst for gold could come in the form of a bursting crypto bubble. Money that went from gold to Bitcoin to play the rally could come back to gold stocks as crypto investors record profits.
Is Yamana Gold stock a buy today?
Gold Yamana (TSX: YRI) (NYSE: AUY) is currently trading near $ 6 per share, up from $ 9 at the peak of the 2020 rally.
Gold production is expected to increase from 780,000 ounces in 2020 to nearly 900,000 ounces in 2023. Beyond this period, Yamana has a number of promising development opportunities in Canada, Brazil and Argentina.
Yamana generates strong cash flow at current gold prices. All-inclusive sustaining costs were US $ 1,080 per ounce in 2020 and are expected to approach US $ 1,000 per ounce this year. The balance sheet is in good shape and investors could see additional dividend hikes this year.
Yamana increased the dividend by 50% in the fourth quarter of 2020. The new payment offers an annualized return of 2.1%.
Yamana has a market capitalization of around $ 6 billion. High-quality Canadian assets could make them a potential takeover target as the industry consolidates.
Should Kinross Gold be on your shopping list?
Kinross Gold (TSX: K) (NYSE: KGC) is currently trading at around $ 9.60 per share, up from $ 13 at the start of August last year.
The miner has come a long way in the past decade after massive takeover blunders that plagued the company with massive debt. Kinross suffered heavy write-downs and sold non-core properties to tidy up its balance sheet. The rebound in the price of gold from US $ 1,100 per ounce in 2015 to nearly US $ 2,100 last year has helped Kinross immensely.
In fourth quarter 2020 results, Kinross said it generated a record free cash flow of US $ 1 billion in 2020 and ended the year with total liquidity of US $ 2.8 billion, including cash and cash equivalents of US $ 1.2 billion. Total debt at the start of the year was US $ 1.9 billion, so the company is in good shape.
The Tasiast mine is finally realizing its potential, delivering record production and low costs for the second year in a row. Across the asset portfolio, Kinross expects production to increase 20% in 2023. All-in sustaining cost for 2020 is less than US $ 1,000 per ounce.
The existing dividend offers an annualized return of 1.6%.
Kinross has a market cap of around $ 12 billion. The war chest of cash on hand and a strong balance sheet give Kinross the flexibility to make further acquisitions to generate additional growth.
Is this a better bet?
Experts believe gold could peak in 2020 later this year or in 2022. The current momentum looks promising and Yamana and Kinross look cheap today. If you only buy one, I would probably make Kinross the first choice.