I’m convinced that Highland Gold Mining (LSE: HGM) has the tools to record more price gains in 2020.
Apart from the unfortunate coronavirus outbreak in China that is supporting bullion at around $1,570 per ounce, there are a wide range of geopolitical and macroeconomic factors that could drive metal prices higher in 2020. These same considerations drove gold values to seven-year highs in 2019 and pulled Highland Gold’s share price 15% higher, too. It’s kept up the pace in 2020 so far and is up 7% since the start of January as well.
Scary times to drive gold demand?
Markets remain tense and a recent survey from HYCM illustrates this perfectly. A pool of investor opinion showed that 57% of respondents believe that “the current international political landscape is making investment markets more volatile.” A further 32% said that they expect the Brexit issue in particular to have a negative impact on their financial portfolio this year.
And as a consequence more than a third (36%) of respondents said that they plan to restructure their portfolio to account for additional volatility. The survey did not reveal intentions to buy gold or gold-related investments specifically. But as the world’s go-to asset in troubled times, it’s likely that this safe haven class will be one of those that experience strong demand.
Bright price and production prospects
Expectations of robust gold prices is one of the reasons City analysts expect Highland’s profits to rise 5% in 2020.
The boffins at UBS just today repeated their belief that gold will average $1,600 per ounce in the current calendar year. And they expect the yellow metal to continue trading around these levels in the first quarter of 2021, too.
Predictions of solid metal prices aren’t the only reason Highland is tipped to thrive, though. Production is booming at the Russia-focussed digger, as fresh mining numbers showed last month. Highland dragged 300,704 ounces of gold out of the ground in 2019, representing a 12% increase year on year. A stunning fourth quarter helped volumes beat guidance and provide momentum going into 2020, too. Then the AIM company produced 83,429 ounces of gold, a 27% annual increase.
No wonder City brokers are saying that they expect annual earnings to keep increasing at Highland beyond the near term, then. Solid production and bright prices mean that a 10% bottom-line increase is predicted for next year as well.
Despite its bright earnings outlook, though, and solid price gains of late, Highland remains attractively priced. A forward price-to-earnings (P/E) ratio of 9 times is comfortably within the value benchmark of 10 times and below.
But the mining giant isn’t just a great pick for growth investors at current prices. City predictions of more dividend growth in 2020 leads to a 5% dividend yield. And the figure moves to 5.5% for 2021. Compare that with the 3% average which the UK’s mid-caps currently throw up.
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Royston Wild has no position in any of the 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.