The high-grade, high-priced miner is up 70 percent over the past year
The stock: So far this month’s trading activity seems to support the “sell in May and go away” seasonal pattern, with market breadth narrowing and concerns about higher-for-longer interest rates rising. But if you mean to stay invested, there are few more market-agnostic sectors than gold mining, and few more reliable performers in that sector than Vancouver-based Lundin Gold (TSX:LUG). Despite a pullback from recent highs, the stock is up 70 percent over the past year, closing at $17.40 a share on Tuesday, May 23.
The drivers: As part of the Lundin Group of Companies, controlled by the eponymous Swedish-Canadian resource dynasty, and as the owner of one of the highest-grade operating gold mines in the world—Ecuador’s Fruta del Norte—LUG commands a premium valuation. The group acquired the property from Kinross Gold (TSX:K; NYSE:KGC) in 2014 and brought it into production in 2019.
In the first quarter of this year the company notched a new high of 140,021 ounces of gold recovered at an all-in sustaining cost of US$728 per ounce. With gold continuing to flirt with US$2,000 an ounce, that makes for a tidy profit. Net income more than doubled from a year earlier, to US$51.5 million, on revenues of US$256.7 million. LUG also pays a dividend, currently yielding north of 3 percent—positively generous for a gold producer.
The caveat to this bullish story is the fact this is a single-mine operation in a country with an uneven record of letting multinational resource companies do their thing. Lundin Gold has exploration projects, but they’re all around the current mine site and elsewhere in Ecuador. To help mitigate this country risk, the company has a detailed responsible mining policy and a five-year sustainability strategy.
Word on the street: “Results continue to exceed our expectations, and for 2023 the company is expecting production in the upper end of guidance of 425,000 to 475,000 ounces of gold,” Haywood Capital Markets analyst Kerry Smith and associate Owen McCleery wrote upon the release of first-quarter results on May 11. They have a “buy” rating and $22.25 target on the stock.
Coming and going: Vancouver’s Absolute Software (TSX, NASDAQ:ABST) agreed to be taken private by Crosspoint Capital Partners for US$657 million (US$870 million including debt) on May 11. The US$11.50-per-share offer represents a 34-percent premium on ABST’s market price before the deal was announced. Crosspoint is a Menlo Park, CA-based private equity firm focused on cybersecurity, privacy and infrastructure software. Shareholders will vote on the agreement in late June.