Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17
7 Signs You Should Add Gold To Your Portfolio Now - 19th Jun 17
US Bonds and Related Market Indicators - 19th Jun 17
Wireless Wars: The Billion Dollar Tech Boom No One Is Talking About - 19th Jun 17
Amey Playing Cat and Mouse Game with Sheffield Residents and Tree Campaigners - 19th Jun 17
Positive Stock Market Expectations, But Will Uptrend Continue? - 19th Jun 17
Gold Proprietary Cycle Indicator Remains Down - 19th Jun 17
Stock Market Higher Highs Still Likely - 18th Jun 17
The US Government Clamps Down on Ability of Americans To Purchase Bitcoin - 18th Jun 17
NDX/NAZ Continue downward pressure on the US Stock Market - 18th Jun 17
Return of the Gold Bear? - 18th Jun 17
Are Sheffield's High Rise Tower Blocks Safe? Grenfell Cladding Fire Disaster! - 18th Jun 17
Globalist Takeover Of The Internet Moves Into Overdrive - 17th Jun 17
Crazy Charging Stocks Bull Market Random Thoughts - 17th Jun 17
Reflation, Deflation and Gold - 17th Jun 17
Here’s The Case For An Upside Risk In The Global Economy - 17th Jun 17
Gold Bullish on Fed Interest Rate Hike - 16th Jun 17
Drones Upending Business Models and Reshaping Industry Landscapes - 16th Jun 17
Grenfell Tower Cladding Fire Disaster, 4,000 Ticking Time Bombs, Sheffield Council Flats Panic! - 16th Jun 17
Heating Oil Bottom Is In.(probably) - 16th Jun 17
Here’s the Investing Reason Active Funds Can’t Beat Passive Funds—and It Worries Me a Lot - 16th Jun 17
Is There Gold “Hype” and is Gold an Emotional Trade? - 16th Jun 17
The War On Cash Is Now Becoming The War On Cryptocurrency - 15th Jun 17
The US Dollar Bull Case - 15th Jun 17
The Pros and Cons of Bitcoin and Blockchain - 15th Jun 17
The Retail Sector Downfall We Saw Coming - 15th Jun 17
Charts That Explain Why The US Rule Oil Prices Not OPEC - 15th Jun 17
How to Find the Best Auto Loan - 15th Jun 17
Ultra-low Stock Market Volatility #ThisTimeIsDifferent - 14th Jun 17
DOLLAR has recently damaged GOLD and SILVER- viewed in MRI 3D charts - 14th Jun 17
US Dollar Acceleration Phase is Dead Ahead! - 14th Jun 17
Hit or Pass? An Overview of 2017’s Best Ranked Stocks - 14th Jun 17
Rise Gold to Recommence Work at Idaho Maryland Mine After 60 Years - 14th Jun 17
Stock Market Tech Shakeout! - 14th Jun 17
The #1 Gold Stock of 2017 - 14th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

How to Pick the Best Gold Bullion Mining Stocks

Commodities / Gold and Silver 2013 Jan 29, 2013 - 08:18 AM GMT

By: InvestmentContrarian

Commodities

Sasha Cekerevac writes: Many investors in gold bullion have become increasingly worried due to the lack of price appreciation lately. Even though there has been an aggressive monetary policy initiative by the Federal Reserve, gold bullion and mining stocks in the sector have declined.

Obviously, no one can predict the future; it’s impossible to know for sure where gold bullion, or mining stocks in general, will be in the future.


However, there are several things that individual investors can do to enhance their probability of success when it comes to investing in gold bullion mining stocks.

One metric that I watch is the debt level of a company. This doesn’t mean to avoid all mining stocks with high levels of debt; rather, one should only buy these companies at a discount, unless they are growing rapidly. Gold bullion mining stocks with high levels of debt are far more likely to be susceptible to negative shocks.

Because interest rates have been low for some time, gold bullion mining stocks with high debt have been able to get away with relatively low rates of financing. But over the next five years, we are certainly looking at a higher interest rate environment; this is one area of caution for investors.

One way to look at gold bullion mining stocks is in two general categories: low- or no-debt mining stocks and high-debt mining stocks. The companies with a high debt level should not trade at a premium when compared to gold bullion mining stocks with low levels of debt, unless their growth rate is above average.

Here are three stocks that are great examples.

One of the largest gold bullion mining stocks is Newmont Mining Corporation (NYSE/NEM). This is a company with over $6.0 billion in debt, which is a debt/equity ratio of 37.1 and trades at a premium with a price-to-book ratio of 1.7, even though revenues and earnings are declining. (Source: Yahoo! Finance, last accessed January 24, 2013.)

One of the smaller gold bullion mining stocks is Brigus Gold Corp. (NYSE/BRD). This company also trades with a relatively high debt level, with its debt/equity ratio at 31.8, but it trades at a slight discount to price/book value just below one and has a revenue growth rate over 50%.

Then we go to Nevsun Resources Ltd. (NYSE/NSU). This is one of the gold bullion mining stocks that have no debt. With over 40% of the share price in cash, it trades at a premium of its price-to-book ratio of 1.5. While revenue was slightly down, a massive cash position and no-debt level are strong supports for shareholders.

What these three stocks show is that it’s okay to invest in a company with a high debt load, as long as you’re not paying a premium. The reason is that the less debt a company has, the greater flexibility there is for the firm. Once debt becomes exceedingly high, an increasingly large amount of cash needs to be spent paying off its financing.

With gold bullion remaining flat, shareholders in mining stocks cannot automatically assume that the commodity will rise substantially. If gold bullion remains flat or even declines further and we see higher interest rates, this will put a massive squeeze and a negative impact on earnings for mining stocks with high debt levels.

Unless the gold bullion mining stocks are smaller companies involved in exploration and able to find and grow their reserves, larger mining stocks could have a significant negative impact over the next five years. This is because larger gold bullion mining stocks tend to be steady producers of gold bullion. They make the spread—the difference between what their cash cost is to extract gold bullion and the market price.

If gold bullion mining stocks have high levels of debt and the cost to carry this load increases, then their earnings will be directly hit. Plus, most senior gold bullion mining stocks are not substantially growing reserves.

As with any sector, not all mining stocks are the same. This is a brief overview of one metric that an investor needs to be aware of when considering gold bullion mining stocks. One fundamental metric is not enough to make an investing decision, but debt load is something worth considering, and it should be part of one’s comprehensive due diligence.

Source: http://www.investmentcontrarians.com/gold-investments/....

By Sasha Cekerevac, BA
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

About Author: Sasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what to look for as an investor. His newsletters provide an experienced perspective on what the big funds are planning and how you can profit from it. He is the editor of several of Lombardi’s popular financial newsletters, including Payload Stocks and Pump & Dump Alert. See Sasha Cekerevac Article Archives

Copyright © 2013 Investment Contrarians - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Investment Contrarians Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife