The gold price has been going gangbusters lately. It is up 22% over the last year, and measured over 20 years, up an incredible 370%.
Good as gold
I’ve always been a bit sceptical about gold as an investment, because it doesn’t pay any interest and has few industrial uses, but there is no arguing with those numbers. You probably should have some exposure to it in your portfolio, especially as it gives you downside protection when markets are falling.
You could simply track the price by investing in a physical gold exchange traded fund (ETF), but if you want a bit more excitement – and risk – you can buy individual gold miners.
Centamin
FTSE 250 listed Centamin (LSE: CEY) is up 30% in the last six months, and 95% over five years, as investors are drawn to a solidly run company that offers direct exposure to gold.
Centamin has also been doing well on its own terms, with first-half production up 8% to 234,096 ounces year-on-year. It also posted EBITDA earnings of $117m, which was 4% better than analysts expected.
Its average realised gold price was $1,305 per ounce, almost double its cash cost of production of just $692. That looks like a handsome margin to me, while $35.7m of free cash flow in the six months to 30 June will help to fund its generous dividends, with the group serving up around $500m in total since 2014. Centamin currently offers a generous forecast yield of 5.3%. It could make a nice portfolio diversifier.
Better still, the £1.13bn group boasts a “strong and flexible balance sheet” with no debt, no hedging and cash and liquid assets of $326.6m. Operating margins are a healthy 25%. However, after recent growth, the gold price is having a slight correction. If the US-China trade war is settled, and markets recover, gold could correct a little. This is worrying as Centamin looks a little expensive trading at 22 times forward earnings.
Trans Siberian Gold
If you want to buckle up for some really exciting gold price action, then book a ride with Trans Siberian Gold (LSE: TSG), the “low cost, high grade” Russia-focused gold miner. Its share price almost quadrupled this year to peak at 132p, although this has reversed in recent weeks, and it currently trades at 103p.
Last month, it posted record first-half revenues of $30m, up 8.7% year-on-year, and a 169.7% rise in profit before tax to $8.5m. Management also finalised the purchase of the licence for the high-calibre Rodnikova deposit, and completed a $7.6m share buyback.
With a market cap of just £88m, we are still talking of a stock-market minnow here. Its growth has been dramatic but you cannot be expecting it to keep racing away at the same breakneck pace.
When people talk about gold being a store of value, they aren’t talking about stocks like these. However, if you are happy to take on a bit of risk with a corner of your portfolio, then Trans Siberian Gold may well be worth further investigation. G.A. Chester reckons its ambition to become a premier mid-tier gold producer looks credible.