Ruth Saldanha: Hello, and welcome to our limited-time series, the Morningstar Canada Stocks Outlook for 2024, where we will speak with Morningstar equity analysts to find out what they expect in the New Year. Today, Jon Mills of Morningstar Research Services joins us from Sydney, Australia to discuss Canadian gold stocks. Now, gold stocks are often very popular among Canadian investors, and as we head into the New Year, in terms of value, these stocks are evenly split between under and overvalued. So, what can we expect in 2024? Jon, thank you so much for being here today.
Jon Mills: No worries, any time.
2023 Was a Mixed Year for Canadian Gold Stocks
Saldanha: So, let's start by talking about how 2023 was for Canadian gold stocks. Were they in line with your expectations?
Mills: It was a mixed 2023. So, a couple of companies such as Agnico Eagle and Kinross have had good production so far in '23 and they were around our expectations. But the two big ones, so Newmont and Barrick, have had a pretty poor 2023. So, it's been mixed.
Canadian Gold Stocks: Expect More of the Same in 2024
Saldanha: Going ahead for 2024, what can investors expect?
Mills: Well, I think more of the same. I mean, it's been a volatile year and that's basically been driven by changing expectations of peak interest rates. So, for those who may not be familiar with gold stocks, gold doesn't throw off any cash flow, obviously, and gold prices and hence minor share prices tend to be affected by rising real interest rates and vice versa. So, look, the Federal Reserve has come out recently and said, maybe they're going to start cutting interest rates next year, but we'll wait and see. So, I'd expect more of the same.
Risks to Canadian Gold Stocks in 2024
Saldanha: Are there any major risks on which you're keeping an eye for 2024?
Mills: Well, there's a few. I mean, the first thing is where interest rates go and unfortunately, I can't predict them. So, if the Federal Reserve doesn't about turn again and starts raising – well, continues to raise interest rates, then that would be bearish for gold miners. But there's also things such as what's happening in the Middle East and in Ukraine. I mean, it's a tragedy for all those involved. But if you're looking from a purely financial point of view, I mean, if things escalate there, then you'd probably see increased volatility and the flight to safety, which would actually be bullish for gold and gold miners.
Top Canadian Gold Stock Pick
Saldanha: So, going into 2024, what's your top pick in the Canadian gold space?
Mills: So, I guess our top pick is Newmont. So, it's the biggest gold miner in the world. It's just taken over Newcrest, so a previously Aussie-listed miner. As I mentioned earlier, it's had a poor 2023, but we think sooner or later it will get things in order and increase production and that should help unit costs and hence margins. It's about 20% undervalued at the moment. The other one is Barrick. Barrick is the second largest gold miner in the world. For similar reasons, we think it's undervalued and at the moment, it's around 15% below our fair value.
Saldanha: Great. Thank you so much for joining us today with your perspectives, Jon.
Mills: You're welcome, Ruth.
Saldanha: For Morningstar, I'm Ruth Saldanha.
