Since the start of the year, the price of gold has risen by over 10%. At least some of this gain is due to the greater uncertainty which is now present in global stock markets. Brexit has the potential to cause a period of difficulty not just for the UK, but also for the European and global economies. Similarly, President Trump’s expected spending plana could cause inflation to rise, which would make a store of wealth such as gold more attractive.
Given this uncertain outlook and the potential for higher inflation, these two gold stocks could be worth a closer look.
Condor Gold (LSE: CNR) is a gold exploration company based in Nicaragua and El Salvador. It recently raised £4.9m in a placing and this is set to help it proceed with its current strategy. This is focused on seeking to fully permit Mina La India in Nicaragua for a 2,800tpd processing plant with capacity to produce around 100,000 oz of gold per annum. It will also seek to secure the surface rights for the rural land that hosts and surrounds the planned future mine infrastructure. Furthermore, it will seek to continue to demonstrate the significant exploration upside of the gold resource at the La India Project.
Clearly, Condor Gold is a relatively small exploration company. It remains lossmaking and is expected to have a red bottom line for the next couple of years. As such, it is a riskier proposition than a number of its larger sector peers. However, with its shares still being 30% lower than they were five years ago and having the potential to rise should the gold price move upwards in future months, it could be worthy of consideration by long-term investors.
Also worth a look within the gold mining sector could be Petropavlovsk (LSE: POG). Its performance in 2016 was relatively impressive, with the company increasing its annual gold production from 228,900 oz to 416,000 oz. Since its total cash costs for the year were around $700 per ounce and it has an all-in sustaining cash cost of around $800 per ounce, the company looks set to deliver improving profitability in future years given the rising gold price.
The deleveraging of the company’s balance sheet puts it in a stronger position to deliver sustainable growth in future. Its capital expenditure plans for the coming year appear to be sensible, with $30m due to be spent. With gold production set to rise further this year to between 420,000 oz and 460,000 oz and a similar cash cost to last year, its financial performance could improve even if gold fails to match its recent price rise in future.
Certainly, Petropavlovsk remains a relatively risky and potentially volatile stock to hold. However, with improving business performance and the scope for a higher gold price, it could prove to be a rewarding stock in 2017 and beyond. And with its shares trading on a price-to-earnings (P/E) ratio of 17.8, it seems to offer relatively enticing value for money for the long term.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.