Senior gold miners are trading almost a quarter below their five-year average valuation despite strong cash flow, as a selloff in precious metals shares extends into the fourth quarter, Haywood Securities says.
The producers trade at 6.82 times their expected cash flow over the next 12 months, compared with a five-year average of 8.83 times, Haywood’s mining analysis team said in a note on Tuesday. That puts the current multiple 23% below the historical average.
“We view the recent selloff as a period of consolidation within an ongoing bull market in precious metals,” Haywood said. “Key structural drivers including central bank accumulation, de-dollarization and elevated global debt levels remain in place.”
Haywood’s analysts expect near-term volatility as investors weigh high oil prices and inflation against the outlook for interest rates. Central bank buying, efforts to reduce reliance on the U.S. dollar and high global debt levels continue to support the longer-term case for precious metals, they say.
Gold index
Gold rose 3.7% in the third quarter, while the VanEck Gold Miners exchange-traded fund, known by its ticker GDX, returned 16%, according to Haywood. The metal gained 9.7% in August before falling 6.3% in September, with weakness continuing into the fourth quarter.
Spot gold climbed from about $4,009 per oz. earlier Tuesday to $4,022.74 at 9:15 a.m. in Toronto, ahead of the Federal Reserve’s interest-rate decision on Wednesday. The Fed is widely expected to hold its benchmark interest rate steady, although economists expect it to raise rates in December as inflation remains elevated. Higher interest rates can reduce the appeal of gold, which pays no interest.
The bank sees strong balance sheets supporting further mergers and acquisitions as producers seek to replenish reserves, increasing competition for exploration and development projects.
Haywood’s three top picks are First Mining Gold (TSX: FF), Thesis Gold & Silver (TSXV: TAU) and Troilus Mining (TSX: TLG), all Canadian developers.
First Mining Gold
At First Mining’s Springpole gold project in northwestern Ontario, Haywood expects a provincial environmental assessment decision in the near term. The project received federal approval for its environmental assessment in June.
First Mining shares closed 3.3% less at C58¢ apiece on Monday in Toronto, valuing the company at C$862 million ($614.6 million). Haywood rates the stock a buy with a C$1.75 target.
At Thesis’s Lawyers-Ranch gold-silver project in British Columbia’s Toodoggone district, Haywood expects a feasibility study before the end of 2027. Investments by Centerra Gold (TSX: CG) and AngloGold Ashanti (NYSE: AU), together with consolidation that has reduced the number of available Canadian development projects, could support Thesis’s valuation, the firm said.
Thesis shares closed 0.4% weaker at C$2.42 apiece on Monday, valuing the company a C$714 million. Haywood has a buy rating and a C$6.50 target.
In Quebec, Troilus is advancing its gold-copper project towards a construction decision after receiving a credit-approved commitment in September for $850 million (C$1.19 billion) of a planned $1.1-billion debt package. Final permits are expected in the first quarter of 2027, Haywood said.
Troilus shares closed 1.3% stronger at C$1.52 apiece on Monday in Toronto, valuing the company at C$843 million. Haywood rates the stock a buy with a C$4.50 target.
Metal prices
Haywood kept its forward commodity price assumptions unchanged in the latest update. It models gold at $4,000 per oz. in the fourth quarter and in 2027, rising to $4,250 in 2028 and $4,500 in 2029 and beyond.
For silver, the firm assumes $55 per oz. in the fourth quarter and in 2027, followed by $60 in 2028 and $65 in 2029 and beyond.
Gold averaged $4,263 per oz. in the third quarter, above Haywood’s $4,000 assumption but below the second-quarter average of $4,508. Silver averaged $62.71 per oz., above the firm’s $55 assumption and below the second-quarter average of $74.87.
The stronger-than-expected third-quarter prices lifted Haywood’s calculated annual averages to $4,411 per oz. for gold and $69.04 for silver, even though it left its fourth-quarter assumptions unchanged.
