Forget the gold price! I’d buy this FTSE 100 mining stock

The gold price is on a tear, but these FTSE 100 gold mining stocks may be a better way for investors to buy into the rising price of the yellow metal.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The gold price has surged in recent months. Following this performance, some investors may have bought into the yellow metal ahead of further positive news. 

However, there are other ways to invest in the gold price without buying gold directly. Owning mining stocks, such as the FTSE 100 and FTSE 250 companies listed below, may be the perfect alternative. 

Gold price play 

Owning mining stocks like FTSE 100 mining group Fresnillo (LSE: FRES) could be a better way to invest in gold without having to buy the yellow metal itself. 

Thanks to the performance of precious metals this year, Fresnillo has earned itself a place in the ranks of the top-performing blue-chip stocks. It is up around 80% year-to-date. If the gold price continues to increase, this trend may continue.

According to its latest trading update, the company produced 26.8m ounces of silver in the first half of 2020 and 381,319 of gold. These figures were slightly below last year’s performance due to disruption caused by the coronavirus pandemic. 

However, the higher gold price should more than compensate for the drop in production. Last year it cost the company around $850 to produce an ounce of gold and around $2 per ounce of silver. At the current gold and silver prices of $1,860 an ounce and $23 per ounce, respectively, it looks as if the business is making a healthy profit on its operations. 

City analysts are forecasting an impressive 25% increase in the company’s earnings per share for 2020, followed by a rise of 57% for 2021. This implies the stock is trading at a forward PEG ratio of 0.7, suggesting the shares may offer a wide margin of safety at current levels. 

What’s more, unlike gold, Fresnillo also offers a dividend. The stock currently supports a dividend yield of 1.1%, which could hit 1.6% next year, according to the City. 

Petropavlovsk

Petropavlovsk (LSE: POG) could be another way to invest in the gold price. Just like Fresnillo, the company has seen demand for its shares surging recently as investor sentiment towards gold mining companies has dramatically improved. 

Its production has jumped this year. According to its latest trading update, gold production rose 42% in the first half of 2020. This timely increasing output will, according to analysts, translate into net income of $164m this year, up from $27m in 2019. 

Based on these projections, the stock is currently dealing at a price-to-earnings ratio of just 7.8 and PEG ratio of 0.3. These numbers suggest the stock offers a wide margin of safety at current levels, which means it could produce high total returns for investors in the years ahead. 

As such, it may be a good idea to buy a share of Petropavlovsk as the gold price continues to rise. It may produce higher returns over the next few years compared to the precious metal as company production continues to increase and costs fall. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Fresnillo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Surely, the Rolls-Royce share price can’t go any higher in 2025?

The Rolls-Royce share price was the best performer on the FTSE 100 in 2023 and so far in 2024. Dr…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Here’s how an investor could start buying shares with £100 in January

Our writer explains some of the things he thinks investors on a limited budget should consider before they start buying…

Read more »

Investing Articles

Forget FTSE 100 airlines! I think shares in this company offer better value to consider

Stephen Wright thinks value investors looking for shares to buy should include aircraft leasing company Aercap. But is now the…

Read more »

Investing Articles

Are Rolls-Royce shares undervalued heading into 2025?

As the new year approaches, Rolls-Royce shares are the top holding of a US fund recommended by Warren Buffett. But…

Read more »

Investing Articles

£20k in a high-interest savings account? It could be earning more passive income in stocks

Millions of us want a passive income, but a high-interest savings account might not be the best way to do…

Read more »

Investing Articles

3 tried and tested ways to earn passive income in 2025

Our writer examines the latest market trends and economic forecasts to uncover three great ways to earn passive income in…

Read more »

Investing Articles

Here’s what £10k invested in the FTSE 100 at the start of 2024 would be worth today

Last week's dip gives the wrong impression of the FTSE 100, which has had a pretty solid year once dividends…

Read more »

Investing Articles

UK REITs: a once-in-a-decade passive income opportunity?

As dividend yields hit 10-year highs, Stephen Wright thinks real estate investment trusts could be a great place to consider…

Read more »