Ground Breakers: All the key picks from RBC heading into gold's anticipated earnings season

Gold production reports start next week, with earnings to follow in August
RBC has outperform ratings on Silver Lake, Regis, Northern Star and Bellevue
Evolution and Gold Road overvalued according to the investment bank’s analysts

Gold bugs will be licking their lips ahead of the start of fourth quarter production reporting next week, the final preview before earnings season in August and — ka-ching — dividend announcements.

It may seem straightforward, but analysts at different banks and funds often have their own idiosyncrasies.

Goldman last week threw its significant weight behind Evolution Mining (ASX:EVN), Gold Road Resources (ASX:GOR) and Regis Resources (ASX:RRL), holding Neutral positions on Northern Star (ASX:NST), De Grey (ASX:DEG) and Capricorn Metals (ASX:CMM).

RBC’s Alex Barkley, Kaan Peker and Paul Wiggers de Vries think otherwise.

They have Evolution and Gold Road in as Underperforms, putting their chips on Silver Lake Resources (ASX:SLR), Regis — the sole joint Buy across the two investment banks — Northern Star and Bellevue Gold (ASX:BGL).

Barkley, Peker and Wiggers de Vries think quarter four results will be generally strong against market expectations, often a feature of June results when miners race to hit guidance and prioritise higher grade production sources.

“Gold miners often have a strong Q4 finish; with potentially less planned milling downtime and some prioritisation of grade,” they said.

“Both can lead to a softer subsequent Q1. Granularity in SLR’s full release could bring potential market upside. We think Q4 misses could come at GOR and NCM (including NEM).”

One big thing to watch for will be stickier costs than the market expects, after inflationary pressures hammered the gold sector in recent times.

“Industry-wide costs have remained higher over FY23 than early expectations. We lift our FY24 costs, and consensus appears to have a similar conservative outlook,” RBC’s analysts say.

“FY24 guidance has been provided by EVN, and is doubtful at the Q4 result for NCM, BGL and potentially SBM.

“The market already appears high for RRL and RMS in FY24. SLR FY24 consensus is ahead of us, however we still find our forecast provides compelling earnings value.

“NST guidance may be conservative, notably at KCGM. For GOR, we believe the market is not pricing in a potential CY23 AISC downgrade.”

Who outperforms and why?

There is of course a need for investors to take all recommendations with a grain of salt.

Analysts can be working for banks who do business with the gold miners in questions. Sometimes they can just be plain wrong.

But they are informed.

It’s also worth noting that RBC is more bearish on gold prices than other banks, like Goldman.

While Goldman sees bullion hitting a record US$2133/oz average next year, RBC says it will come down from US$1984/oz in the June quarter to US$1865/oz next quarter and US$1810/oz in December.

It has notably raised estimates since its last check however, lifting its gold forecast 9% to US$1887/oz for 2023 and 1% to US$1714/oz for 2024, before sliding to US$1700/oz in 2025 and US$1650/oz in 2026.

RBC has lowered its price target on Regis from $2.60 to $2.50, though that remains upside on its $2.22 trade today.

It estimates Regis’ output will lift from 458,000oz this year to 483,000oz next year with lower all in sustaining costs with the ramp up of the new Garden Well Underground and Havana Open Pits at Duketon and Tropicana, with the miner’s bank balance to swell from an estimated $243m to $384m between FY23 and FY24 as a result.

The lower price target comes from “more conservative estimates” of next year’s guidance, though an 18% QoQ lift in production in the June quarter has already been delivered.

RBC has lifted its price targets on Ramelius Resources (ASX:RMS) and Silver Lake however, rising 8% to $1.30 and 7% to $1.60 respectively.

“We find SLR trades cheaply (2.3x FY24e EV/EBITDA), in part due to a lack of confidence in SLR’s operations and outlook. FY24 guidance and commentary could help alleviate some concerns,” Barkley et al say.

“We already predict slightly softer gold and AISC than consensus, and from these numbers we find SLR’s earnings and cash flow are cheap. Production and grade outlook at most valuable site Deflector will be key (66% of our operating asset value).”

Not so Golden Road?

Despite having a more negative view on Gold Road, RBC has upped its price target by 7% to $1.50. GOR currently trades at $1.66, but could see higher costs and lower than expected production for the rest of the year after dropping guidance on the back of issues with its drill and blast fleet at the 50% owned Gruyere mine last quarter.

St Barbara (ASX:SBM) has copped the biggest PT hit, halving from 70c to 35c after selling its flagship Leonora assets to Genesis Minerals (ASX:GMD).

RBC has left its price targets unchanged for Northern Star and Bellevue at $14 and $1.50 respectively, but warned volatility could come for BGL shares once it became a producer.

That would be the trigger for inclusion in Van Eck’s Gold Miners ETF.

“As BGL approaches first production the market is likely to start considering forward earnings and cash flow multiples. We suspect consensus has not fully considered capitalised gold production,” RBC says.

“This could see some reductions to forward operating earnings estimates, however, even with some tax implications we believe there would be limited overall impact to cash flow or BGL’s value.”

GDX inclusion could come on December 8 or March 8 next year depending on when BGL hits commercial production.

But it could also come earlier.

“The NYSE Arca Gold Miners Index, on which the GDX is based, has stated it has discretion to include companies that have not yet commenced production,” RBC assesses.

“This is if they have tangible revenues that are related to either the mining of gold or silver ore. Hence, toll treating of gold ore by GMD could theoretically lead to BGL being added to the GDX Index.

“The gray area around the September and December GDX inclusions could be problematic for the funds which tend to trade around index inclusions and deletions. This could potentially create some share price volatility for BGL.”

Northern Star could see a 20% lift in June quarter production, with stronger performance from its Kalgoorlie Consolidate Gold Mines operation expected in FY24. RBC expects NST to produce 1.572Moz in FY23 against consensus of 1.563Moz and guidance of 1.56-1.68Moz, with costs of $1745/oz close to consensus of $1744/oz.

For FY24 it expects to see that lift to 1.807Moz at costs of $1580/oz, roughly in line with consensus estimates.

EVN’s price target has been adjusted up 9% to $2.40, but that remains well below the gold and copper miner’s $3.74 value today, up almost 60% in the past year.