Gold mining stocks: how are Newcrest, Northern Star and Fresnillo performing?

Gold is often viewed as a safe bet during difficult times, but mining stocks have tumbled in 2022. Newcrest, Northern Star and Fresnillo have all seen recent hits to their share prices. However, some analysts predict gold may recover in the second half of 2022, meaning undervalued stocks could be a buying opportunity.

The price of gold has been on a rollercoaster ride in 2022, causing the shares of leading gold miners Newcrest Mining [NCM.AX], Northern Star Resources [NST.AX] and Fresnillo [FRES.L] to fluctuate. 

The price of the precious metal rose at the start of the year as the Russia-Ukraine war unfolded and the threat of rising inflation loomed. By March, it had broken through the significant threshold of $2,000 an ounce. However, in February, Joni Teves of UBS predicted that stronger gold prices would turn out to be a “short-lived” trend and would fall by the end of the year. 

As of mid July, gold was trading at its lowest price for nine months, according to Trading Economics, priced at $1,735.23 per ounce at the end of the day on 13 July.

When it comes Newcrest, Northern Star and Fresnillo, all three stocks have tumbled significantly recently. Year-to-date as of 14 July, Northern Star Resources’ share price is down 26.5%, Fresnillo has reduced 23.3% and Newcrest has fallen the most, at 27.2%. 

However, gold’s fortunes might yet reverse again. Other analysts forecast the metal’s recovery in the second half of 2022. “The metal looks poised to come out ahead,” said Bloomberg Intelligence senior commodity strategist Mike McGlone.

Newcrest Mining struggles despite promising Q2 forecast

Australian company Newcrest is one of the world's largest gold miners and the largest gold producer that is listed on the Australian Securities Exchange. At the end of last year, its reserves were estimated at 54 million ounces of gold, which would mean 20 years-worth more mining potential at its current production rates.

In March this year it completed its acquisition of Pretium Resources, the owner of the Brucejack mine in British Columbia, Canada. Sandeep Biswas, CEO of Newcrest, said at the time: “Newcrest’s base case gold production is expected to remain strong until at least 2030, and we have a range of further upside opportunities being progressed across the portfolio.” 

In April this year, the company’s stock reached A$28.84, seeing its highest price since back in November 2020.

The company is scheduled to release its next earnings report on 21 July. In its last set of results for the three months ended 31 March, it reported gold production was 10% higher than the prior quarter. It also realised a price of $1,828 per ounce, and it predicted a FY22 production of between 1.9 million and 2.03 million ounces of gold.

Despite this, Newcrest stock is still suffering. In the four weeks to 14 July alone, it has fallen by more than 17%. Fellow Australian miner Evolution Mining [EVN.AX] posted a negative business update in June, predicting falling production rates, which some commentators have speculated may have weakened sentiment towards Newcrest.

The consensus rating among 16 analysts is to ‘hold’ Newcrest stock, according to CNN, with eight offering this rating.

Analysts still bullish on Northern Star Resources

Another Australian gold producer, Northern Star has mines in western Australia as well as in Alaska.

At its Q3 results in April, the company reported sales of 308,100 ounces of gold, with production down by 3% compared with the previous quarter. It has previously said that by FY2026, it plans to bump up production by 25% while improving its cost profile.

However, like Newcrest, its stock has suffered badly in 2022. In June alone, the share price of Northern Star fell by 23%.

Nonetheless, analysts remain bullish on Northern Star’s potential in 2022. Citi analysts recently kept a ‘buy’ rating on the stock, despite reducing their price target to A$12.10. This would still reflect an 74.9% upside on the close of A$6.92 on 14 July. 

Of 16 analysts offering a rating at the Wall Street Journal, 13 are calling for a ‘buy’, suggesting they think that Northern Star’s share price is currently undervalued and a potential opportunity for investors. A median target price of A$11.67 is 68.6% above its most recent closing price.

Fresnillo on track to meet targets

Fresnillo is Mexico’s biggest gold producer, as well as the world’s leading silver miner. In April, reporting its Q1 results, the FTSE 100-listed company said that it is “committed to delivering on our targets for the year”, with production “in line with expectations”. 

It also announced intentions to ramp up production at its Juanicipio project from mid-2022, which is producing 435,000 ounces of gold per year.

For full-year 2021, it reported an increase in gross profit of 6.5% to US$936.9m.
It also delivered 751,203 ounces of gold, which was 2.4% down on 2020.

However, a number of analysts have weighed in on the stock recently, downgrading their previous ratings. On 10 July, Jefferies analyst A Spence said he expects the company to post earnings of $0.53 per share for the year, down from a prior forecast of $0.57. 

Analysts at Credit Suisse also downgraded the stock to an ‘underperform’. The firm’s analyst Danielle Chigumira said she was concerned that the company had reduced its production guidance by 18% over the past five years, while labour reforms may lead to a 15% increase in costs.

According to MarketBeat, eight analysts have a consensus of ‘moderate buy’ on the stock, with an average price of 1,040.63p, representing a 52% increase on its closing price of 684.6p on 13 July.