Gold has glittered this year, climbing to a new high above $4,000 an ounce today, and so have shares in precious metals miners, just not in London.
While global gold equities surged more than 120% in the third quarter, the UK-listed names have lagged.
Helped by a 6% rise in the gold price to an average of $3,452 an ounce during the past quarter, record free cash flow is expected across the sector in the upcoming results season, RBC Capital Markets predicted.
But the broker thinks the real interest now lies in how miners use their windfall.
For London investors, attention turns to Fresnillo PLC (LSE:FRES) and Hochschild Mining PLC (LSE:HOC, OTCQX:HCHDF), both due to report later this month.
RBC expects solid third-quarter free cash flow from Fresnillo, around 1% of its enterprise value, and a stable production outlook after a strong silver rally.
Hochschild is tipped to deliver more mixed results as grades vary across its Peruvian and Argentinian mines, though the shares still carry an “outperform” rating and a £4 target.
Across the sector, producers are on track for a 7% earnings rise and a 22% jump in free cash flow, despite a 3% increase in all-in sustaining costs to $1,638 an ounce.
That cash is expected to feed buybacks and debt reduction, continuing a trend that has already left most large miners with net cash positions.
Among the majors, RBC is upbeat on Agnico Eagle, AngloGold Ashanti and Newmont, all forecast to beat expectations, while Barrick Gold remains weighed down by higher costs and management uncertainty.
The message for UK investors is that gold’s run still has room to play out.
With the metal near record highs and cash returns improving, miners’ shares remain, as RBC puts it, “within historical valuation ranges but still attractive” on free cash flow yields.