Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
Obama’s “Catastrophic Defeat” in Ukraine - 30th Aug 14
Stock Market Inflection Point Approaching - 30th Aug 14
Gold And Silver - Elite's NWO Losing Traction. Expect More War - 30th Aug 14
Corporations Join Droves of Americans Renouncing US Citizenship - 30th Aug 14
Peter Schiff U.S. Housing Market, House Prices Bubble Warning - 30th Aug 14
Russia, Ukraine War - It’s Time to Play the “Gazprom Card” - 29th Aug 14
The One Tech Stock Investment You Should Never Sell - 29th Aug 14
Bitcoin Price $500 as Current Downside Barrier - 29th Aug 14
Don't Get Ruined by These 10 Popular Stock Market Investment Myths - 29th Aug 14
Low Cost Transcontinental Gold - 29th Aug 14
Gold Bullish Central Banks Should Give Money Directly To The People - Helicopter Janet? - 29th Aug 14
US House Prices Bull Market Over? Trend Forecast Video - 29th Aug 14
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness - 29th Aug 14
AAPL Apple Stock About To Get sMACked - 29th Aug 14
A History of Unlimited Money: Learn From It or Repeat Its Mistakes - 29th Aug 14
How You Can Play to Win When Market Makers Are Calling the Shots - 28th Aug 14
EU Gas Supply Is In Real And Imminent Danger - 28th Aug 14
Central Banks at the Root of Evil - 28th Aug 14
European Bond Market: Bubble of all Bubbles! - 28th Aug 14
Employers Aren’t Just Whining: The “Skills Gap” Is Real - 28th Aug 14
The ISIS Menace - Just What We Need, Another War - 27th Aug 14
The Risky Business of Methane-Rich “Fire Ice” - 27th Aug 14
CFR Recommends Policy Shift that is Very Bullish for Gold - 27th Aug 14
Ukraine Standoff Signals Global Power Shift - 27th Aug 14
Stock Market Panic Decline Begins - 27th Aug 14
The Monopoly of the Government Education Cartel - 27th Aug 14
How to Invest in Silver Today for Double-Digit Gains - 27th Aug 14
The Big Solar Energy Breakthrough We've Been Waiting For - 27th Aug 14
U.S. Empire’s Bumpy Ride - 27th Aug 14
Gold Market and the Interest Rate Trap - 27th Aug 14
Stock Market Staring Into the Great Abyss - 27th Aug 14
A Look at the Coming 30-year Inflation Cycle - 27th Aug 14
Forex Trading - Will USD/CHF Rally Above 0.9200? - 27th Aug 14
Europe’s Depressing Economy Dog Days of Summer - 27th Aug 14
How The Coming Silver Price Bubble Will Develop - 26th Aug 14
A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? - 26th Aug 14
Stock Market Bear Tracks Abound In Wall Street - 26th Aug 14
65,000 U.S. Marines Hold up a Mirror to the Economy - 26th Aug 14
Bitcoin Market Provides Clues for Investors - 26th Aug 14
The Key to Trading Success - 26th Aug 14
Will The US Succeed in Breaking Russia to Maintain Dollar Hegemony?... - 26th Aug 14
Even Mainstream Academia Worried about Massive Bubbles in Markets - 26th Aug 14
Iraq and Syria Follow Lebanon's Precedent - 26th Aug 14
Colonization by Bankruptcy: The High-stakes Chess Match for Argentina - 26th Aug 14
Dow Stock Index On The Cusp - 26th Aug 14
Prohibition Laws and Agency Regulations - 26th Aug 14
Will Canadian Regulators be Able to Avoid Final Fatal TSX Venture Exchange (TSX-V) Crash? - 25th Aug 14
HUI Gold Mining Stocks Elliott Wave Projection - 25th Aug 14
Stock Market Uncertainty Resolved With New High - 25th Aug 14
Go Forth Multiply And Replenish The Earth - 25th Aug 14
Dollar Dumping: When Actions Speak Loudest - 25th Aug 14
A Plethora of Currency, Stocks and Precious Metals Chartology - 25th Aug 14
Why Isn’t Fed Monetary Pumping Helping the U.S. Economy? - 25th Aug 14
Myths About Money and Inflation - 25th Aug 14
The Fed Will Raise U.S. Interest Rates in March 2015 - 25th Aug 14
Gold Price Manipulation Still Alive - 25th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

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

© 2005-2014 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

Free Report - Financial Markets 2014