What are we looking for?
Profitable and fast-growing precious metals producers.
The screen
Gold prices edged higher to more than US$3,370 an ounce this week after U.S. air strikes on Iranian nuclear facilities, fuelling demand for precious metals, which have long been considered a safe haven. While U.S. President Donald Trump recently announced a ceasefire agreement, uncertainty remains elevated. This builds on an emerging trend, as gold was trading at US$2,351 just 12 months ago.
Other precious metal prices such as silver and platinum have also risen, and Canada is home to some of the world’s most stable and well-run producers. Using FactSet’s screening tool, I identified Canadian precious metals companies with high profitability and growth by applying the following parameters:
- Members of the S&P/TSX Composite Index
- Classified under the precious metals sector, according to FactSet
- Market capitalization greater than $1-billion
- One-year projected sales growth greater than 10 per cent and earnings growth more than 20 per cent
- Net income margin greater than 20 per cent
The eight companies that passed were sorted by a multifactor ranking of projected sales growth, earnings growth and net profit margin.
What we found
These companies have already delivered tremendous returns this year, with an average year-to-date gain of 71.1 per cent, far outpacing the S&P/TSX Composite’s 9-per-cent return. If metal prices stay elevated, they could see even stronger earnings momentum and cash flow generation ahead.
Wesdome Gold Mines Ltd. WDO-T, a Canadian gold producer with operations in Ontario and Quebec, ranked No. 1 on our screen with strong earnings and sales growth projections of 116.6 per cent and 49.5 per cent, respectively. With gold prices surging and expansion efforts under way, Wesdome is well-positioned to boost its already strong net profit margins of 29 per cent as investor demand for hard assets remains elevated.
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K92 Mining Inc. KNT-T, a Vancouver-based producer that operates in Papua New Guinea, ranked No. 2 on our screen, with robust earnings and sales growth forecasts of 69.4 per cent and 36.8 per cent. With a net income margin exceeding 40 per cent, K92 stands out as a high-margin operator with international diversification and significant leverage to gold.
The information in this article is not investment advice. The author assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.
Arjun Deiva, CFA, is an MBA Candidate at the University of California, Berkeley, Haas School of Business.
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