Out of all the ways to benefit from a potential gold rally, buying stock in the $12 billion miner Equinox Gold is among the best.
This might seem an arbitrary take, given the many publicly traded gold miners. But Vancouver-based Equinox, which is covered by just 13 Wall Street analysts, is more a diamond in the rough than a mere beneficiary of higher gold prices. With multiple published materials every quarter (its second-quarter summary runs 43 pages), it's a fairly communicative company that's on the doorstep of demonstrating productivity improvements in several of its six mines. It could therefore boost its valuation toward the rest of the industry, and of course would see its earnings explode higher if gold prices do the same.
This scenario would likely spark larger stock gains for Equinox than for other miners, thanks to its lower valuation. The industry would see profit expectations rise, while Equinox's self-help story would give it the kicker of an expanding price/earnings multiple.
This thesis begins with the argument for higher gold prices. The precious metal is down 24% from its record high in January, to about $4,050 an ounce. That isn't surprising, given that it has about doubled in the past three years, almost begging traders to take profits. But like clockwork, it always sees support above the roughly $3,900-to-$4,000 area, where buyers have swooped in all year to stabilize the price. Even with the recent dip, gold remains in its larger uptrend of the past three years, suggesting buying support is close by.
"We look at this as another generational opportunity to get into gold at a relatively low basis," says Ben McMillan, chief investment officer at IDX Advisors. "The upside for gold is extremely robust."
Sparking some of that upside would likely be central banks, which are diversifying their reserves away from U.S. dollars in the face of geopolitical tensions. The third-largest buyer in the second quarter, central banks and other institutions increased their net purchases of ounces by over 400% quarter over quarter, according to the World Gold Council. They tend to buy more on dips, which should give gold-related investors confidence in the commodity's long-term trajectory.
"Central banks are not speculators," McMillan says. "If ever there was a buy-the-dip participant, it's those guys when it comes to gold."
Higher gold prices mean earnings gains for miners -- including Equinox, which saw almost all of its $770 million in second-quarter revenue from gold. When the price of gold rises, expected sales rise. Miners have many fixed costs, such as depreciation and other exploration costs that don't change quickly. So, higher sales means higher profit margins, sending earnings up by a larger percentage than sales.
Just imagine what would happen to earnings estimates if gold reclaims its record high, 31% above current levels. Equinox would participate in the party, with the added tailwind of operational improvements.
It just acquired Orla Mining, which has two mines, one in Mexico and the other in Canada. The deal, a mostly stock transaction that closed in July, increases Equinox's overall operating profit margin as the two Orla mines carry higher profit margins after accounting for all-in sustaining costs per mine versus Equinox's mines. The company's 2026 guidance implies it expects Orla's mines to produce almost 400,000 ounces of gold annually, about one-third of the company's expected 1.1 million ounces.
If the market sees that Equinox is integrating Orla without surprise costs or hiccups, it will price the higher margins into the stock. Often, the market remains skeptical of an acquirer until it sees successful integration, a risk to the story, but there's currently no reason to doubt it.
"The integration will wrap up by the end of this year," Jason Simpson, incoming Equinox CEO and former Orla CEO, tells Barron's. "We're well on our way to that."
Two other Equinox mines, Greenstone and Valentine, both in Canada, have room for improved margins. Their profits per ounce of production lags behind those for "senior" gold producers -- slightly larger miners Equinox aspires to rival, namely Kinross Gold, Alamos Gold, and Agnico Eagle Mines.
That's where Equinox's "trommel" comes in. That's a machine that sorts out certain earth material during the mining process to pull out more gold-bearing rock faster. The company is installing the trommel this year. Current and outgoing CEO Darren Hall said on the second-quarter earnings call that the company will see some benefits of the equipment before year end.
Any update from the company in the third or fourth quarter that the trommel is unlocking more gold production at Greenstone would catalyze stock gains, as the market would anticipate higher margins there. More production in mining or excavating businesses typically translates into more market share for the producer. Revenue per mine would rise much faster than cost per mine, given that most of the mine's fixed costs are already in place. Sure, a glitch with the trommel is a risk, but it might not crush the stock from here, given that the relatively small valuation already reflects subpar operations for Equinox.
"We expect valuation multiples will expand as the flagship Greenstone and Valentine mines ramp up production," writes BMO analyst Kevin O'Halloran, who has a $15.70 price target on the U.S.-traded shares, which equates to a 50% gain from Wednesday's close of $10.48.
For areas near Valentine, the company announced early this year it's using "Dora AI," an artificial-intelligence-powered software program that identifies promising exploration areas. Here, as well, Equinox is making a small investment to enhance gold production. Overall, Greenstone's and Valentine's productivity should improve over the coming quarters.
Greater productivity and margins would create a larger and more stable miner in Equinox -- lifting the valuation. Currently trading at about 7.6 times forward earnings, the stock would rerate closer to the near 12 times for the VanEck Gold Miners exchange-traded fund. Just returning to par with the industry -- where Equinox traded before the Orla merger -- would increase the stock by 51%. That's even before considering higher earnings from rising gold prices.
The main risk is that the price of gold could fall below recent support. Sure, a slow Orla integration or scant updates on the trommel are the main company-specific risks, but another leg higher in interest rates would push gold to the next level of support, at about $3,700, because a higher risk-free rate of return would compete against gold's appeal. But that's far from a certain outcome, given that rates have stabilized for weeks now, after having priced in a lot of inflation.
In Equinox, investors can strike gold.
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