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Exploring investors "El Dorado" - four Latin American gold mining companies with long hold potential

Commentaries & Views

Investors are once again keeping a close watch on central banks around the world, as many of them are set to announce a series of potential rate hikes in the coming weeks, further tightening their monetary policies, and indicating more potential hikes before the end of the year.

After a much-needed pause in June 2023, the Federal Open Market Committee (FOMC) is once again in talks over more potential rate hikes in the coming months, leaving some analysts to speculate that two 25-basis-point hikes are still on the books for 2023.

Gold and commodity markets have remained reactive on the announcement of more potential rate hikes, and following a series of tumultuous macroeconomic challenges throughout the last several months.

On July 24, spot gold price remained unchanged from the week before, at $1960.01 per ounce, while the U.S. Gold Futures stumbled by 0.2% to $1961.80.

With gold prices still lower than their peak from earlier in the year, investors remain speculative over the Fed's hawkish economic landing. Yet, a handful of traders are certain that spot gold performance could swing in a new direction once central banks wind down their monetary tightening.

Latin America - Investors El Dorado

Mineral and rare earth mining continue to be an economic stronghold for Latin America, seeing increased exploration, with the region accounting for 25% of global exploration capacity last year, totaling more than $3.26 billion.

Overall, mining currently represents 4.6% of the region's Gross Domestic Product (GDP), producing 50% of silver, 45% of copper, 49% of molybdenum, 19% of zinc, and 15% of gold.

Yet, despite the prolific performance, top exploration countries such as Argentina, Brazil, Chile, Dominican Republic, Mexico, and Peru among others are still faced with key industry challenges related to sustainability, government policy, and legal uncertainty.

Despite the challenging landscape, key regional players continue to experience increased global support, as the energy transition is helping to boost the production and exploration of additional mining facilities across several extraction regions.

The growing importance of sustainability and environmental goals has further increased the need for critical minerals such as lithium and copper for the production of electric vehicle batteries and other components.

Other variables, including the stronger dollar, geopolitical tensions, and proximity to the U.S. have further helped strengthen ties between Latin America and developed economies. However, these remain temporary resolutions, but supply chain and exploration constraints in other parts of the world could help boost the regional development of the market, further establishing a foothold for investors in the commodity market.

Four Gold Mining Companies To Watch

Gold and mining exploration continues to enjoy increased spending with global exploration budgets rising 16% in 2022, following a 34% rebound from the year before. Last year, the nonferrous global exploration budget jumped to a 9-year high, accumulating to more than $13.01 billion.

Driven partially by increased interest rates, and global decarbonization efforts, exploration companies have been met with healthy financing conditions, allowing for advancements in exploration efforts, resources, and human capital.

As financial conditions continue to experience improvement, Latin America is poised to be driven by further investment, as traders look to keep portfolios buoyant with more long-term investment opportunities.

Sociedad Química y Minera de Chile

Sociedad Química y Minera de Chile (NYSE: SQM) could potentially still be undervalued, however, a recent lowering of their price target by J.PMorgan Chase & Co. caused stock prices to sink by 2.6% on July 23.

The global investment bank lowered its price target range from $97.00 to $93.00, with the bank having an overweight rating on SQM. However, potential shareholders could be in a comfortable position, with Deutsche Bank Aktiengesellschaft also reducing their price target from $95.00 to $90.00 back in April 2023, and giving the stock an overall “Buy” rating.

Although conditions have somewhat changed since the initial report by Deutsche Bank, SQM is currently trading below the industry P/E ratio due to a seemingly negative profit outlook. This has left both investors and analysts somewhat skeptical over the potentially higher risk of Sociedad Química y Minera de Chile.

Quarter-over-Quarter (QoQ) revenue experienced a 12% boost, although net income fell by 5% according to its latest earnings report. A further assessment of their recent earnings report shows that SQM reported earnings of $2.63 per share, and announced a quarterly dividend of $0.51 per share which was paid to investors in mid-July.

Currently, analysts estimate that SQM could post 12.45 Earnings-Per-Share (EPS) for the fiscal year, however, investors continue to remain cautious over SQM as the year unfolds, looking to diversify their portfolios, with potential upside for SQM in the coming months based on their annual production and exploration figures.

Horizonte Minerals Plc

The UK-based Horizonte Minerals (LSE: HZM) is set to commence mining activities on its now 100%-owned Araguaia project after the approval by the Pará State Secretariat for Environment and Sustainability (SEMAS) in Brazil.

While the company is largely focused and driven by nickel exploration and production, diversification of its operations in recent years has seen them further grow its gold development projects in Australia.

Horizonte announced its first gold pour back in May 2020, after the completion of the first stage of the Boorara Gold mine in Western Australia.

Although gold production in Australia has remained one of its key portfolio components, the company is furthering the process of developing two 100% owned Tier 1 nickel asset productions in Brazil.

On the stock market, HZM has seen share performance jump by 13% to date, surpassing its peak of April during early trading sessions in July this year. Cash constraints remain a challenge for the company, although seeing net income increased by 59% during the most recent quarter.

While there could be a potential upside for Horizonte, exploration projects still in the development phase could hinder positive net cash growth for the fiscal year. This could create further difficulties for investors looking to side with gold mining companies that could see long-term benefits, however, perhaps with Horizonte investors could be looking more at its nickel production, instead of relying on its gold business segment for future growth.

Grupo México

Copper exploration company, Grupo México S.A.B. de C.V. (GMEXICOB: BMV) currently holds one of the largest copper reserves in the world and sees some of the lowest extraction costs based on industry averages.

While copper extraction and refining is their biggest business segment, other divisions include infrastructure, transportation, and foundation.

The company has laid more than 11,000 kilometers of roads across the Mexican Republic, and Florida and Texas in the U.S. Other impressive achievements the company has under its belt include the connection with five ports in the Pacific Ocean, four in the Atlantic, and four in the Gulf of Mexico.

Currently, the company operates more than 14 underground and open pit mines, with gold being one of its exploration divisions. While the company is based in Mexico, it further operates locations in Peru, Argentina, Chile, Ecuador, Spain, and the United States.

Based on the conglomerate's growth, share prices of BMV are up 28.80% to date, and witnessed a close 7% increase during July, as gold prices remained steady and reacted to the stronger dollar.

Most recent reports revealed that the company reported more than $1 billion in net income, representing an 8% QoQ increase. Further indications show that BNV has a healthy balance sheet, however, YoY revenue performance has been on the decline due to increased operational and exploration costs.

While there's a positive indication that the company is in a healthy condition, considering broader macroeconomic challenges, the current price performance of BMV could continue to bring upside for investors that are willing to stick around for the long-term.

Stock performance has seen a decline of 23% since its peak last year in April, however, further exploration of new developments, and improvements in its multi-faceted business divisions could help boost earnings in the coming years.

Antofagasta Plc

Chilean multinational mining company, Antofagasta Plc (LON: ANTO) currently owns and operates four mines across Chile. These exploration projects include Los Pelambres in central Chile, and Centinela, Antucoya, and Zaldívar are in the Antofagasta Region, a northern part of the country.

While the country itself is fairly rich in natural copper reserves, seeing exploration projects taking shape all across the region, Antofagasta produces significant volumes of both gold and molybdenum.

Recent developments and exploration efforts to increase their presence in the country have seen them discovering bigger gold deposits in the Chilean High Andes. These reports are helping the company further increase its gold division, seeing as demand continues to outpace its current supply efforts.

Based on market performance, ANTO is expected to experience steady performance throughout the year, although price target growth has been relatively slow in recent months. To date, prices have only improved by 4%, however, July presented a major upside, with ANTO up close to 12%.

Market turbulence, including price fluctuations of both copper and gold, has led the company to experience a decrease in its quarterly revenue, with figures down by 14%, and the company reporting more than $1.63 billion in revenue for the latest quarter.

Although there has been some seismic activity taking place on their balance sheets, the company is heavily diversified in terms of exploration activities, seeing more than 176,800 ounces of gold extracted during the fiscal full financial year of 2022.

One positive upside for Antofagasta is that the majority of their mines' life expectancy extends far beyond 2030, and the company owns either a majority or half stake in their mining operations.

Concluding thoughts

Developments in the mining and exploration industry could experience upside potential in the coming years, as global demand for raw earth materials continues to grow on the back of decarbonization efforts.

The Latin American landscape is experiencing increased involvement from gold traders and investors, as global political and economic tensions continue to present them with increased difficulties against a backdrop of macroeconomic concerns.

While there's potential upside for these companies, investors will need to continue their conservative position on these companies in the event of further economic downturns influenced by higher interest rates and economic recovery.

Disclosure: No positions in any companies mentioned.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.