Despite record cash-flow margins and stronger balance sheets, gold miners are still trading at modest valuations, according to asset management firm Schroders Global.
James Luke, fund manager for metals at Schroders, said the sector’s performance remains disconnected from its fundamentals.
“In the second quarter of 2024, we noted that gold equity valuations were close to 40-year lows, despite the secularly bullish outlook for gold, and observed that the sector could rally 50% and still look inexpensive,” Luke said. “Reviewing the latest data, we can’t help but think we were too cautious, even after this year’s substantial rally; gold equities remain undervalued from multiple perspectives.”
Gold producers are posting profit margins nearly twice as high as their 2020 peak, supported by easing cost pressures and renewed demand for gold as a monetary asset. That, according to Schroders, has translated into free cash flow well above expectations, while companies have avoided overspending and kept a focus on shareholder returns.
The global trend is mirrored in SA, where Gold Fields and Harmony Gold have generated strong cash flow and maintained strict cost discipline. Their shares have risen this year, but Schroders notes that valuations remain modest compared with historical averages.
Luke said many miners have strengthened their financial position, with several moving from net debt to net cash. “That strength supports higher payouts to shareholders while reducing operational risk.”
Schroders sees long-term support for gold coming from structural pressures such as rising global debt, reduced central bank independence and the shift towards multi-polar monetary systems. The firm believes the gold price could climb as high as $5,000/oz by the end of the decade, offering substantial potential upside for mining firms and investors.
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