Endeavour Mining (LSE:EDV) is a member of the FTSE 100. The stock outperformed the index in 2022 and I think it will do so again this year.
I’m expecting 2022’s interest rates to cause a recession this year. As a result, I expect the price of gold to do well compared to share prices in general.
This, I think, should be good news for a company like Endeavour, which owns and operates gold mines across Africa. That’s why I think the stock will outperform the FTSE 100 in 2023.
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Recession
In 2023, I’m expecting two things. The first is a recession and the second is the price of gold to remain relatively stable.
The reason I think a recession is likely is that interest rates have been rising. From 0.1% at the start of 2022, the Bank of England has increased rates to 3.5%.
In my view, this makes a recession almost inevitable. And I think this means that earnings from FTSE 100 companies will face significant headwinds.
Lower earnings is, as I see it, likely to lead to lower share prices. While this is true in general, I think there will be exceptions for investors who know where to look.
During economic downturns, the price of gold has often remained stable. Investors have historically viewed gold as a ‘safe haven’ in times of stock market stress.
I’m expecting something similar in 2023. I anticipate that a significant class of stock market participants will look for shelter as share prices fall, causing the price of gold to stay stable.
Gold mining
I therefore think that the price of gold will hold up well as share prices fall. So why am I looking at shares in a mining company, rather than just buying gold directly?
One reason is that gold is a speculative asset, rather than an investment. In other words, it has no earnings and doesn’t produce any cash.
A gold-mining company, on the other hand, generates cash by extracting and selling gold. This difference is important.
The only way to make money owning gold is by selling it. So if the price of gold goes down, then I’ll make a loss by owning the metal directly.
With a mining company, I can make money by the company selling the gold it produces. As long as the company remains profitable, I can make money even if the gold price falls.
Endeavour Mining
That’s why I prefer shares in a gold-mining company to the metal itself from an investment perspective. And I see FTSE 100-listed Endeavour Mining as a particularly attractive stock to own.
The main reason for preferring Endeavour to other gold miners is that it has some of the lowest production costs in the industry. I think that this is a big advantage.
Lower costs should, in my view, help the company remain profitable even if the price of gold falls more than expected. That’s why I think it will outperform the FTSE 100 this year.
The company’s low costs come with risks. The political situation in the countries where its mines are located can be unpredictable and this creates uncertainty.
Overall, though, I’m expecting a strong year for this stock. I’m looking to add it to my portfolio in the near future.
