Gold miners: why there's still plenty of upside in the sector

JPMorgan projects substantial upside for EMEA-listed gold mining shares, particularly if gold reaches their 2026 target of $4,100/ounce, potentially driving a 60-100% increase in share prices. Fresnillo PLC is JPMorgan's top pick due to its low valuation (5-5.5x EV/EBITDA) and strong 8% free cash flow yield, further supported by recent industry transactions at higher multiples; Hochschild Mining PLC and AngloGold Ashanti also received positive ratings due to volume growth and reserve upgrades, respectively.

Analysis

JPMorgan's latest assessment of EMEA-listed gold producers suggests significant undervaluation within the sector, with share prices potentially lagging the recent strength in precious metals. The bank's commodities team projects a gold price of $4,100 per ounce by 2026, a forecast that, if realized, could lead to a 40-50% upside in average sector EBITDA expectations and a substantial 60-100% increase in share prices. Fresnillo PLC (LSE:FRES) is highlighted as a top pick, rated "overweight", trading at a modest 5 to 5.5 times enterprise value to EBITDA (EV/EBITDA) and offering a robust 8% free cash flow yield; its valuation appears particularly attractive when contrasted with Pan American Silver's recent joint venture partner buyout at approximately 10 times EV/EBITDA. Hochschild Mining PLC (LSE:HOC), also rated "overweight", is presented as a multi-year holding with appeal stemming from expected volume growth exceeding 50% by 2028 and a current valuation below three times EV/EBITDA on 2026-27 forecasts, indicating significant re-rating potential. AngloGold Ashanti (ASX:AGG) features on JPMorgan’s recommended list following a 20% upgrade to its net present value, driven by updated reserves and mine plans, with new price targets implying roughly 35% upside from current levels. The overall sentiment from JPMorgan indicates that despite gold price strength, mining shares have not fully reflected this, presenting an opportunity, particularly for producers with strong cash flow, low valuations, and rising production.

Key Decisions for Investors

• Investors should consider allocating to or increasing exposure in the gold mining sector, given the potential for substantial share price upside if JPMorgan's bullish $4,100/ounce gold price forecast for 2026 materializes.
• Fresnillo PLC warrants close examination due to its compelling valuation at 5-5.5x EV/EBITDA, strong 8% free cash flow yield, and the favorable valuation comparison implied by recent industry M&A activity.
• Hochschild Mining PLC could be attractive for investors seeking growth, with its projected 50%+ output increase by 2028 and low current valuation offering re-rating potential, while AngloGold Ashanti's 35% upside potential is underpinned by specific reserve and mine plan upgrades.
• Monitor gold price developments closely, as the significant upside potential outlined for these mining equities is heavily contingent on the gold price reaching or trending towards the $4,100/ounce level.