8 Precious Metals Plays for Your Portfolio

Although gold has underperformed the general stock market over the past year, many leading advisors believe it is only a matter of time before precious metals again reassert their position as both a safe haven and an inflation hedge. Here are eight gold and silver ideas that are ranked as favorites by contributors to MoneyShow.com. Kuen Chan, The Complete Investor Franco-Nevada -- a royalty/streaming specialist -- is our favorite gold company. One reason gold stocks have largely underperformed gold is concern over inflation-driven cost increases. But that's less of a concern for Franco-Nevada, since it doesn't actually operate mines. This means less direct exposure to cost inflation, along with avoiding the sizable normal operating risks that go with mining. Franco-Nevada benefits from production growth as the mines in which it owns an interest come online or expand output. And while gold is Franco-Nevada's bread and butter business, energy along with base metals and platinum group metals offers diversification. The company's balance sheet is pristine, with zero debt and $1.6 billion in available capital. Keep in mind that given its business model and financial strength, even a gold bear market wouldn't be the worst thing because it could allow Franco-Nevada to scoop up additional assets from potentially distressed miners at more favorable terms. The stock trades at a substantial premium over other gold stocks. However, given Franco-Nevada's consistent earnings growth -- compounded annual EPS growth of 28% since 2010 -- its attractive business model that has proven its mettle in good times and bad, and its excellent management team, we think the premium is well deserved, and we view Franco-Nevada as a core gold holding. Brien Lundin, Gold Newsletter Vox Royalty (Toronto: VOX) made a big move lately with the announcement of a deal to acquire two royalties on a massive platinum group elements (PGE) resource in South Africa owned by Sibanye Stillwater . South Africa is a long-running hotbed for PGEs and gold, and the project in question, dubbed Limpopo, hosts a 36-million-ounce PGE resource. In exchange for consideration of up to C$10.4 million, Vox can take a 1.0% gross receipts royalty on the Dwaalkop project and a 0.704% gross receipts royalty on the Messina project. Collectively, these projects cover the full extent of the Limpopo project. The project was last mined in 2009, and there's full surface and underground infrastructure in place related to the Baobab shaft. Sibanye produced a feasibility study for the restart in 2017 and had it reviewed in 2020. The bottom line is a restart of the project looks financially viable. Sibanye is a big operating partner for Vox to land. It has a market cap north of US$10 billion and total of seven PGE operations and five gold operations under management. In addition to the PGE exposure these royalties give Vox, they also provide exposure to battery metals via Limpopo's rhodium, copper and nickel content. It's a big transaction for the company and one that adds a couple of choice royalties to the 50+ royalties in Vox's portfolio. Vox shares jumped on the news, though they've since settled back down to pre-announcement levels. To my eyes, that creates a buying opportunity, as these two new royalties have the potential to generate cash flow for decades to come. Peter Krauth, Silver Stock Investor Endeavour Silver has had some really big -- in fact, transformative -- news. It's buying the Pitarilla Project from SSR Mining . Located in Durango, Mexico, Pitarilla is one of the world's largest undeveloped silver projects. In my view, this is a trophy asset. EDR is paying just $70m in a combination of cash and shares to SSR Mining. In return, it gets 525Moz Measured & Indicated at 99. g/t silver, 27Moz Inferred at 77.4 g/t silver. For context, this more than triples EDR's resources! To me, that looks like quite the deal. In fact, it works out to about $0.13 per silver ounce. Now of course, Endeavour still needs to pay for and build the mine, and there are plenty of production costs to get each ounce out of the ground. But this looks like an excellent price, especially considering the attractive grades. Once the deal closes in H1, EDR will start work to define a current mineral resource, then identify targets and develop a drill campaign by end of year. Given that Pitarilla is also in Durango State, along with the producing Guanacevi Mine, there are plenty of synergies to benefit from, and the company's regional team can be leveraged to advance the project. This is a big bite, but I think management can pull it off and leverage this in a rising silver price environment. EDR looks attractive, but may suffer from some overhang with two big projects in advancing mode. Silver price strength should help leverage the share price higher. EDR is attractive to accumulate on weakness. Mike Cintolo, Cabot Top Ten Trader Newmont Mining is the world's largest gold miner by production, with operations in North and South America, Australia and Africa; the company boasts the industry's largest gold reserves, also producing copper, silver, zinc and lead. Last year was a challenging one for Newmont, which included a virus-related shutdown and rainfall-related setbacks at two of its Australian mines, a mechanical failure at a Nevada mine, plus rising cost pressures, labor shortages and supply disruptions. But the company worked through these problems (the Australia shutdown ended in July and the Nevada mill was repaired in September). Newmont expects to produce 6.2 million gold ounces in 2022 (a 3% improvement from last year) at an all-in sustaining cost of $1,030 per ounce -- well under the current gold price of $1,830, allowing for plenty of profits. The company is also targeting gold production of as much as 6.8 million ounces annually over the next five years, with costs projected to decline starting in 2023 (as investments in profitable projects pays off). A 3.5% dividend yield is an added attraction. Technically, NEM peaked at $75 in May of last year and started on a six-month decline. But shares began bottoming out months ago, and it's hard to ignore the big volume buying that started in December. It's not in a true uptrend yet, but we think NEM's path of least resistance might be turning up. Ryan Irvine, Internet Wealth Builder One stock we do like now is Caledonia Mining -- a gold producer; its primary asset is the Blanket Mine in Zimbabwe, and it continues to explore that country for potential mining opportunities. The Blanket Mine has a 13-year life projection. Caledonia is a profitable, cash-rich gold producer, operating in the relatively risky jurisdiction of Zimbabwe. The company pays a healthy, growing dividend and has funded expansion projects with internally generated cash flow. The company has shown decent long-term growth with a compound annual growth rate of 9.4% between fiscal year-end 2017 and fiscal year-end 2020. With the stock recently at just 3.8 times adjusted EBITDA and 3.6 times funds from operations (FFO), it trades at a discount to competitors, which trade in the range of 7-8 times EBITDA. While the company should trade with at a discount due to geopolitical risk, the solid dividend yield, cash generation, and cash rich balance sheet appear to make the discount too high. For investors with a high degree of risk tolerance, Caledonia is a speculative Buy. The company will continue to be highly correlated with the price of gold and a flat to higher pricing environment for the metal in 2022 is key to significant positive returns. Adrian Day, Global Analyst Pan American Silver reported results above third quarter and the previous year, but still somewhat disappointing. Many of its operations are still affected by Covid restrictions. In fact, because of this the company will not be issuing full-year guidance in January but hopes to next month. Several of its mines which have been weak should see improvements during the year, some because of the ongoing decline in Covid severity, and others because of operational improvement. Notably, there is an ongoing ramp up in production at La Colorada following capital improvements. The most significant trigger would be some advance on the consultation process in Guatemala between the government and the local communities over the re-opening of the Escobal mine. After running to $25 during the week, the stock fell along with most resource stocks, and at the current level is a buy. Fortuna Silver reported a good fourth quarter, with Lindero, the new gold mine in Argentina, in particular producing above expectations as long covid-aggravated teething problems are put behind it. The mine's 36,000 ounces of gold production represents 47% of the annual total. Overall gold-equivalent ounces is expected to increase by between 7% and 21% over 2021. Capex estimates (excluding the Séquéla mine in Cȏte d'Ivoire currently under construction) were significantly higher than expected. The company has a robust exploration program, with $29 million allocated for this year, of which almost $9 million is greenfields. Fortuna has experienced a string of bad luck over the past couple of years, but with Lindero now up and running at planned rates and the San Jose extension permit in hand, and following the integration of the West Africa acquisition, Fortuna, with strong management and a solid balance sheet, is set for growth. With ongoing protests surrounding San Jose, and a mine under construction, there are still things that can go wrong. We may see some downside follow-through, and would look to buy additional Fortuna on any further weakness. Bob Carlson, Retirement Watch The forces that kept inflation low since the early 1980s are fading. In time, the Fed will have to take stronger measures than anticipated by investors and Fed officials. In early 2022, market pricing indicates investors expect inflation to fall after modest interest rate increases that won't substantially reduce economic growth. Investors are looking backward, expecting the next year to closely resemble the pre-pandemic period. A better approach is to expect surprises, be sure all investments have a margin of safety, and be broadly diversified. Global growth and inflation should continue to benefit mining company stocks, which we own through iShares MSCI Global Metals and Mining Producers . We added the ETF after it tumbled in the second quarter of 2021, and it has been recovering nicely. Mining company stocks also should benefit from the significant restructuring many companies undertook in recent years. Most now can be profitable at relatively low prices for commodities, and profits will grow as commodity prices increase. PICK follows an index of global mining companies that excludes precious metals companies. It holds 216 stocks, but 47% of the fund is in the 10 largest positions. Top holdings of the fund recently were BHP Group , Rio Tinto , Freeport McMoRan , Vale SA and Anglo American (London: AAL).

8 Precious Metals Plays for Your Portfolio

It is only a matter of time before gold and silver stocks again reassert their position as both a safe haven and an inflation hedge, according to Investment experts.

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