Consider Premier Gold Mines for Next Price Rally

The stock has several catalysts

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Gold closed at $1,400.10 per troy ounce on Monday, reflecting a 1% decline from the second-highest price so far this year of $1,414.90 reported on the London Bullion Market at close on Thursday.

The downtrend is a result of the strong increase in U.S. nonfarm payrolls by 224,000 in June, which tempered expectations that the Federal Reserve will announce a wide cut in interest rates at the end of the month.

The likelihood for easing monetary policy to boost the U.S. economy, however, remains high as industrial activity is sluggish.

The IHS Markit U.S. Manufacturing Purchasing Managers' Index, which indicates how prevalent economic trends are moving in the manufacturing and service sectors, marked a moderate increase to 50.6 in June from 50.5 in May. Nevertheless, it was still the second-lowest figure over the last decade.

The index must be further away from June’s figure to provide a clear sign that the economy is expanding.

A cut in interest rates will push the price of gold higher as investors will be more likely to invest in the precious metal than in bonds and other fixed-income securities. TD Securities forecasts gold will begin to uptrend in 2019, reaching $1,500 an ounce in the final quarter of 2020. The estimate represents more than a 7% increase from current prices.

Investors who are in line with TD Securities’ expectation on future gold prices should gain exposure to the metal through junior miners, as these high-leverage operators beat consensus estimates on earnings by wide margins when gold prices are high. This gives the stock price a boost.

Thus, investors may want to consider acquiring shares of Premier Gold Mines Ltd. (PIRGF, Financial), a Canadian producer of gold and silver. The company also explores and develops precious metals deposits in North America and Mexico.

In the first quarter of 2019, the company produced 17,614 ounces of gold at an all-in sustaining cost of $1,105 per ounce of metal sold. Premier Gold Mines guided for production for full fiscal 2019 of 75,000 to 85,000 ounces of gold at an all-in sustaining cost of $900 to $950.

In addition to the next gold bull market, higher grades of ore mined, consistent stope production from Mexican operations and the development of two mining projects in Nevada, which will start producing saleable gold in 2020, are the catalysts.

Analysts gave Premier Gold Mines a buy rating with a price target of $3.61, which reflects 133% upside from Monday’s closing price of $1.55.

Although the share price is above the 200-, 100- and 50-day simple moving average lines, the stock still offers a compelling entry point. In fact, the price-book ratio of 1.07 is lower than industry median of 1.43 and the closing price on Monday was below the midpoint of the 52-week range of $1.05 to $2.16.

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Additionally, the 14-day relative strength index of 53.90 suggests the stock is neither overbought nor oversold.

Disclosure: I have no positions in any securities mentioned.

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