Gold hits record high: Top ASX gold miners to watch

Gold prices hit a fresh all-time high on Friday after the European Central Bank cut interest rates for the second time in three months and in anticipation of a modest Fed rate cut at its policy meeting next week.

Gold prices climbed 1.9% overnight to a record high of US$2,560 an ounce. Year-to-date, gold has emerged as one of the best-performing commodities, up around 24%.

Here are the key overnight developments that contributed to gold's push into record territory:

• As widely expected, the ECB cut interest rates by 25 bps to 3.5%

• The ECB's new projections showed a weaker growth outlook and more stubborn core inflation. ECB President Christine Lagarde said the euro-area economy "continues to face headwinds" but will "strengthen over time"

• The ECB still expects inflation to reach its 2% target in the second half of 2025

• US core producer prices rose 0.3% month-on-month in August vs. 0.2% consensus but on an annualised basis, headline PPI was 1.7%, below 1.8% consensus

• The likelihood of a 50 bp Fed rate cut next week ticked higher to 28% overnight, up from 14% on Thursday but down from 50% a month ago

Gold miners are leveraged to higher bullion prices and set to deliver some serious cash flows, especially now that inflation headwinds subside and CAPEX commitments roll off. We'll examine some noteworthy gold names across the ASX below.

The Biggest: Newmont

Newmont (ASX: NEM) is the world's largest gold miner and the S&P 500's only listed gold producer. The company operates over a dozen mines across the US, South America, Africa, Australia and Canada.

Analysts from Canada's CIBC upgraded the stock to Outperform back in July, with the view that more US investors will become interested in gold and gravitate towards Newmont as the largest producer in the space. Back at home, Macquarie analysts rated the stock as Outperform with a $83 target price.

From a strategic point of view, Newmont has been busy divesting its non-tier one assets, recently announcing the sale of Telfer (one of Newcrest's assets) and Havieron for up to US$475 million.

Newmont is forecast to have around $8.8 billion in debt and Macquarie views ongoing divestments as a catalyst to "meet its US$5 billion net debt target and potentially go beyond the current US$1 billion buyback."

The Old Guard: Evolution and Northern Star

Northern Star (ASX: NST) and Evolution (ASX: EVN) are the two longest-standing large-cap gold names on the ASX. Both companies announced a record set of numbers during the August reporting season. Here are some of their key numbers.

Northern Star FY24 earnings highlights:

• Revenue up 19% to $4.9 billion

• Underlying EBITDA up 48% to $2.2 billion

• Cash and bullion of $1.2 billion as at 30 June 2024

• Record FY24 total dividend of 40 cents per share

• On-market share buyback extended for 12 months, with $128m remaining on $300m program

• Completed first year of a three-year build for its KCGM expansion, which will position KCGM as a top five global gold mine

Evolution FY24 earnings highlights:

• Underlying EBITDA up 67% to $1.51 billion

• Net mine cash flow up 1,533% to $583.7 million

• Final dividend up 150% to 5 cents per share

• Gearing outlook: "We delivered on our promise to start deleveraging in FY24 and gearing reduced from 33% to 25% ... we expect to generate more cash in FY25 that will drive gearing down further."

Comparing the large caps

The below tables outline Macquarie's FY25 forecasts for the three large cap miners, focusing on comparable metrics. As these are projections, they may change and should be used as an indicative guide only.

The Up-and-Comers

There are many companies in the $1-3 billion market cap range. Rather than diving into the details of each one, I’ll highlight some of the broader themes at play.

• Production growth: Top-performing gold stocks like Pantoro and Emerald Resources stand out due to their well-managed growth strategies, avoiding further share dilution while maintaining the potential for expansion.

• African miners: Resolute Mining and West African Resources are two Africa-based miners operating out of Burkina Faso, Mali and Senegal. The two gold miners tend to trade at a substantial discount to peers due to the perceived risks associated with the region. To add some perspective, Macquarie forecasts RSG and WAF to trade at FY25 EV/EBITDA of 1.4x and 3.5x respectively. That's a sizeable discount compared to the 6x of the above large caps. These stocks tend to re-rate the most amid higher commodity prices as their earnings and cash flow become too hard to ignore.

• Underperformers: De Grey and Bellevue Gold might sit one some of the best emerging gold assets in Australia but their share prices have struggled following large and/or unexpected capital raising to fund project development. De Grey raised $600 million back in May while the 'fully funded' Bellevue unexpectedly raised $150 million in July.

Interesting Small Caps

There are plenty of interesting smaller cap names that have hit some of the largest gold discoveries in recent years or an under-the-radar earnings profile.

Spartan Resources (ASX: SPR) might go down as one of the most remarkable explorers in recent years. The stock is up more than 1,000% since May 2023 after the discovery of a 2.48Moz (and growing) gold resource at its Never Never Deposit in WA. "As we drill, we just keep finding more," said Managing Director Simon Lawson. The company expects to establish a mining reserve "well north of seven figures" before restarting operations in WA. The company's exploration success has piqued the interest of its neighbour, Ramelius, which has built an 18% stake in the company.

Catalyst Metals (ASX: CYL) is another WA success story, aiming to double its production over the next three years while driving costs lower. In the past twelve months, the company has grown its gold production by 46%, gold reserves by 105% and delivered positive cash flows of $54 million. By FY27, the company is targeting 180-220koz (FY24: 110koz) at all-in sustaining costs of $2,000 to $2,200 (FY24: $2,555).