Gold prices continue to rise.
The bullion closed at $1,520.65 per troy ounce on Tuesday, bringing the cumulative average for September to $1,513.37 an ounce. This reflects 1% growth from August and a more than 25% increase year over year.
Will gold continue to uptrend?
Sluggish worldwide economic growth and unsettled trade talks between the U.S. and China will continue pushing gold prices higher.
Further, expectations for additional rate cuts by the U.S. Federal Reserve in the coming months are positive drivers of gold prices as lower interest rates make the precious metal more convenient to hold than bonds and other fixed-income securities.
Thus, gold steadily trading above $1,600 per ounce before the end of 2019 is a realistic target.
When gold rises, the share prices of publicly traded miners increase as well.
The VanEck Vectors Gold Miners (GDX, Financial) exchange-traded fund, which is the benchmark for the gold mining industry, has gained 40% so far this year versus the 17.2% rise in the price of the metal.
In order to benefit from rising commodity prices, investors may want to invest in gold stocks that outperform the industry.
U.S.-listed shares of Canadian miner Teranga Gold Corp. (TGCDF, Financial) have climbed 44% this year, topping the VanEck Vectors Gold Miners ETF by 4% and the bullion by 27%.
The stock is not cheap as it is trading above the 120-, 70- and 30-day simple moving average lines. The closing share price of $4.28 on Tuesday is near the upper limit of the 52-week range of $2.23 to $4.28.
Despite the high valuation, sell-side analysts on Wall Street recommend buying shares of Teranga Gold and have established an average target price of $6.59, reflecting over 50% upside to hit within 52 weeks.
The stock has several catalysts that will support it.
The company has a trailing 12-month earnings before interest, taxes, depreciation and amortization margin of 26.4%, beating most of its competitors. The Ebitda margin is the best indicator to assess the profitability of companies operating in highly capital-intensive industries like mining.
Teranga produces gold from its Sabodala mine in Senegal. It produced 63,436 ounces of gold at an all-in sustaining cost of $870 per ounce in the second quarter, which translated to a pro forma net profit of 3 cents per share on $83.6 million in revenue.
Although revenue declined 2.9% year over year due to lower sales volumes, Teranga exceeded projections by $5.6 million, demonstrating high profitability of its operations.
The company has another gold mine at Wahgnion in Burkina Faso, where operations achieved the first gold pour in August. Teranga expects Wahgnion will bring the company’s consolidated total gold production up to 245,000 to 270,000 ounces in 2019 and to 300,000 to 350,000 ounces in 2020.
Thanks to the contribution of Wahgnion, production in 2019 will be more than 5% higher than consolidated gold production of 245,230 ounces in 2018. And production in 2020 will be more than 33% higher than two years before.
The miner is also advancing exploration activities in Burkina Faso, Côte d’Ivoire and Senegal, where prospective gold properties are located.
The operator is mining the precious metal from mineral reserves that accounted for more than 4 million ounces of gold as of Dec. 31, 2018.
GuruFocus assigned a rating of 5.8 out of 10 for the company’s financial strength and a rating of 5 out of 10 for its profitability and growth.
The price-book ratio is 0.79 versus the industry median of 1.49 and the enterprise value-Ebitda ratio is 7.12 versus the industry median of -3.87.
The stock has a market capitalization of approximately $458.32 million.
Disclosure: I have no positions in any securities mentioned.
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