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Two turnaround gold stocks I’d buy today

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Today I’m looking at the contrasting fortunes of two stocks I believe are among the top buys in today’s gold market.

Get out of jail free?

Has troubled Tanzania-based gold miner Acacia Mining (LSE: ACA) just been given a ‘get out of jail free’ card by its majority shareholder?

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A statement on Thursday morning certainly suggests to me that the company has new grounds for optimism in its dispute with the government of Tanzania.

The firm’s share price has fallen by more than 50% since May as a dispute with the government has prevented normal levels of gold exports. Acacia’s majority shareholder, Barrick Gold Corporation, has been negotiating on its behalf with them.

Last week it was reported that Barrick had agreed a solution, but that Acacia might have to pay $300m as part of a settlement. This looked like a problem. Andrew Wray, Acacia’s chief financial officer, was quoted in the Financial Times as saying: “We don’t have the ability to make an upfront $300m payment”.

Problem solved?

Fast-forward a few days and Acacia has issued a new statement. The company notes that Barrick Gold has increased its provision with respect to Acacia’s historical tax liabilities, from $128m to exactly $300m.

Is this just a coincidence, or is this part of a plan by Barrick to ease Acacia’s path back to normal operations? In my view, the latter is more likely. The firm’s shares have risen by 5% following the news, suggesting that other investors are cautiously optimistic.

A potential bargain

A proposal for a settlement with the Tanzanian government is expected early in 2018. If a deal is agreed, I believe that Acacia should be able to return fairly quickly to normal operations.

If you share this outlook, then you may want to note that the firm’s shares currently trade on a 2018 forecast P/E of just 5.5, with a prospective yield of 6.6%.

These forecasts clearly imply that the mining company will return to business as usual next year. There’s still a risk this won’t happen. But if it does, the shares could be a bargain at current levels.

My top choice for income

Shareholders at Highland Gold Mining (LSE: HGM) don’t need a get out of jail free card.

The Russia-focused firm’s shares currently trade at an attractive 10% discount to their book value, with a forecast P/E of 9.

This company has always been run with a focus on providing an income for shareholders, and brokers expect a full-year dividend of $0.11 per share this year. That’s equivalent to a tasty 5.8% dividend yield.

One potential risk is that more than 40% of this firm’s shares are controlled by a small group of wealthy Russia-based businessmen. These include Chelsea FC owner Roman Abramovich and Highland’s executive chairman, Eugene Shvidler. Should they choose, I’d expect this group to be able to change the future direction of the firm.

However, there’s no sign of this so far. The group’s operational performance seems good too, with gold production up by 14.6% during the third quarter. Broker forecasts have also edged higher, suggesting to me that this stock remains a strong buy.

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Roland Head owns shares of Highland Gold Mining. 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.

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