Gold prices are surging higher – But here's the kicker for ASX gold stocks

Gold prices rallied to fresh all-time highs of US$2,222 an ounce overnight after the Federal Reserve upgraded its forecasts for the US economy and signaled that it is still on track to make three rate cuts by year end.

Most ASX-listed gold miners including Evolution Mining (ASX: EVN), Newcrest (ASX: NST) and Newmont (ASX: NEM) opened 3-7% higher on Thursday.

While gold prices might be sitting at all-time highs – The same can't be said about gold miners. Most mid-to-large cap names are trading 20-50% below late 2020 levels.

"The Gold Miners ETF (ASX: GDX) has underperformed gold by 30% over the past 3 years shows just how hard delivery has been," UBS analysts said in a note on Thursday.

"With gold trading at A$3,340/oz (US$2,180/oz), we remain positive the sector with our forecasts calling for A$3,400/oz (US$2,200/oz) by year end on the US rate easing cycle ... Lifting our long-term price could add 10-30% to our net present value's; however, pressure continues on delivery for the gold miners."

The Latest Headwind

Widespread rainfall in Western Australia has emerged as the latest production challenge for local gold miners.

"We were just turning our mind to risks of delivery in the Mar-Q, where consensus was and who had promised a stronger 2H before the latest challenge presented itself," the analysts said.

This has prompted several production downgrades from names including:

• Regis Resources (ASX: RRL) – 18 March: "In March a substantial and protracted regional rain event, with more than 50% of average annual rainfall month to date, has impacted operations." The company cut its March quarter gold production forecast but reaffirmed its FY24 production guidance. Regis shares are down 13% year-to-date.

• Gold Road (ASX: GOR) – 14 March: "The substantial rainfall event has resulted in the closure of Laverton Shire roads that provide access to Gruyere and the suspension of mining operations over a portion of this period, with the likely resumption of open pit access expected next week." The company also eased its March quarter gold production forecast but reaffirmed FY24 guidance. Gold Road shares are down 22% year-to-date

• Capricorn Metals (ASX: CMM) – 11 March: "The combined impact of these two weather events has been the loss of mining shifts totalling in excess of 8 full days of mining in the March 2024 quarter to date." Capricorn downgraded March quarter production figures and said it expects FY24 production to come in at the lower end of its guidance. Capricorn shares are up 8.2% year-to-date.

• Westgold (ASX: WGX) – 14 March: "Flooding has impacted some operations and impacted both surface and underground haulage ... Wet feed has contributed to crusher failures at both Fortnum and Tuckabianna over this period." Westgold said the events have impacted approximately 15,000 to 20,000 ounces of production in FY24. The company expects production to now come in at the lower end of its FY24 guidance and costs to be at the top end.

UBS expects both Regis and Gold Road to report FY24 numbers towards the lower end of guidance.

Bellevue Gold (ASX: BGL) and Genesis Minerals (ASX: GMD) was flagged as two names that escaped interruption. While Northern Star has yet to announce any challenges, the analysts believe its "almost exclusive WA footprint would likely have had some exposure and it does have 2H weighted production."

Sector Picks

"At the large end, we prefer Evolution on a turnaround, valuation and copper leverage over Northern Star and the still disappointing Newmont," the analysts said.

"At the smaller end we prefer large inventories and geology with lots of optionality to high prices. This means De Grey and Gold Road over Bellevue (Although this could be a FY25 story)."