#88: Coronavirus Investing Series, Part 6 | Jeremy Raper | Opportunities In Gold

This is Part 6 of a special Coronavirus Investing Series. If you
have not listened to Part 1, please click here to get
the overall context/market overview during this unprecedented
time.


You can also listen to:


Part 2

Part 3

Part 4

Part 5



 


In this episode of The Intelligent Investing Podcast, Eric
Schleien & Jeremy Raper discuss opportunities in the Gold
Sector.
Macro View

The macro view is that due to the massive debasement of currency
during this coronavirus pandemic, that will be bullish for gold
prices. In addition, gold companies such as Kinross Gold are
shutting down production due to coronavirus outbreak which ends
up being a net-positive for the commodity. Unlike commodities
such as copper, gold demand is not impacted by economic activity
due to less actual functional utility. 


 
Gold Mining Stocks

 


However, Jeremy prefers Gold Minding stocks to owning actual
physical gold outright. The reason for this is that if you can
buy a gold miner that has been dumped during this coronavirus
crisis, and you can find one where their revenue is in US Dollars
but their costs are in their local non-US currency, you can also
benefit from margin expansion. The margin expansion comes from
cheaper labor costs, a lower price of oil, and a debasement of
non-US currencies which have been destroyed in relationship to
the US Dollar.


 
Polyus Gold

Polyus PJSC (Russian: ПАО "Полюс") is
a Russian gold mining company. It is the largest
gold producer in Russia and one of the top 10 gold mining
companies globally by output (2.84 million ounces of gold
production in 2019). It is headquartered
in Moscow and is listed on both the Moscow and London
Stock Exchanges.Polyus’ main assets are located in Eastern
Siberia and the Russian Far East - in the regions
of Krasnoyarsk Krai, Irkutsk Oblast, Magadan
Oblast and the Republic of Sakha.


The company is controlled by Said Kerimov, son of Russian
billionaire and politician, Suleyman Kerimov.


Due to the majority share ownership of Polyus by Said Kerimov,
the company is not a buyout candidate. However, the company will
benefit from margin expansion and Jeremy believes the company is
trading at low-mid single digits of earnings based on $1,500 gold
price. That equates to a 7.5% dividend yield on a conservative
basis and probably higher with margin expansion.


If you want to listen to the episode of Jeremy discussing Polyus
Gold, you can listen here. You can also listen to the commentary
on Polyus on YouTube.


 
DRD Gold

 


Another gold mining stock that Jeremy likes is DRD Gold based out
of South Africa. Like Polyus, they will benefit from a
depreciation in their local currency (Rand), and benefit from
higher gold prices. Unlike, Polyus, the company is a takeout
candidate as their parent company has moved up its ownership
stake in DRD from 40% to over 50%. DRD has a boatload of cash and
no debt. The company currently trades at a very low P/E bases off
$1,500 gold and their parent may very likely buyout shareholders
in order to take advantage of the low stock price. Furthermore,
the parent will probably want access to a large amount of cash
being that the parent is somewhat levered. It's interesting to
note that DRD pays an unusually low dividend which Jeremy
suspects are due to marching orders from the parent company.


 
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