The Canadian gold industry’s second mega-deal in a little over four months has some investors taking another look at the sector, which has been lagging for years. Earlier this week, Goldcorp Inc. announced that it would be merging with Colorado-based Newmont Mining Corp. in a US$10 billion deal that came close on the heels of Barrick Gold Corp.’s September merger with Randgold Resources Ltd. While some may be on the lookout for the next takeover target, there are other reasons investors may be tempted jump back in, according to analysts at BMO Capital Markets, CIBC and National Bank of Canada. Here are three stocks in the sector those analysts believe could have upside going forward.
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Alamos Gold Inc.
Alamos Gold Inc.’s stock was decimated in 2018, hitting a high — $8.49 — on the first market day of the year and spiralling to a low of $3.88 in mid-December. But BMO Capital Markets analyst Brian Quast sees potential for the stock. At a recent investor day, CEO John McCluskey suggested Alamos could do a buyback to help the shares, which closed Wednesday at $5.44. The Toronto-based company, which operates two mines in Canada and another two in Mexico, also reported fourth-quarter 2018 production of 126,000 oz., surpassing Quast’s expectations of 119,000 oz., due to increased production at Island Gold, a mine in Northern Ontario. But it’s the company’s development projects in Turkey that could prove to be a real catalyst for the stock. Alamos reported that it had secured construction permits for one of its two projects there and Quast believes the receipt of further permits, such as those required to operate the mine, will be very positive for the stock. He has a target price of $10 and an outperform rating on Alamos.
Detour Gold Inc.
Like Alamos, Detour Gold Inc. blew away analyst expectations on its fourth-quarter 2018 production. The Toronto-based company, which operates an open-pit mine in northeastern Ontario, reported production of 158,200 ounces of gold, easily surpassing CIBC’s estimate of 144,000. Detour spent much of 2018 in turmoil due to a proxy battle and its stock reflected that, declining from a high of $15.40 in April to below $10 later in the year. After the proxy battle ended with a swift stroke that saw five of eight board members ousted, the stock was re-energized. On Wednesday, it closed at $11.98. CIBC analyst Cosmos Chiu, who has an outperform rating on the stock along with a $17 target price, sees an avenue for continued growth because of higher gold prices. As of 4 p.m. on Wednesday, gold was trading at US$1,293 per ounce, well above prices from mid-2018 when it dipped below US$1,200. “We expect (Detour) shares to benefit in this seasonally strong period for gold,” Chiu wrote.
Another gold company that could have good news on the horizon is B2GoldCorp, which has “multiple catalysts in the pipeline,” according to National Bank of Canada analyst Don DeMarco. The Vancouver-based company has five major mines in production: two in Nicaragua and three more in the Philippines, Namibia and Mali. B2Gold is looking to expand its Fekola mine in Mali and is expecting the results of a study on how to optimize the expansion through mining production rates and ore processing. The company is also expecting results for expansion and mill expansion studies to its El Limon mine in Nicaragua and its Masbate mine in the Philippines respectively. The results, according to DeMarco, are expected to be released in the first quarter of 2019. On Wednesday, the stock closed slightly down at $3.78, but is trading 40 per cent above its 52-week low of $2.77, which it hit in August. DeMarco has a $7 target price on B2GoldCorp.