Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

My Two Favorite Gold Mining Stocks

Commodities / Gold and Silver Stocks 2013 Apr 10, 2013 - 12:14 PM GMT

By: Money_Morning

Commodities

Martin Hutchinson writes: With the world's central bankers printing money like mad, you would think investing in gold mining stocks would be a no-brainer.

Yet despite these misguided policies, the Market Vectors Gold Mines Index (NYSE: GDX) is down 40% from its peak last September. Even worse, it's off 48% from its all-time highs in 2011.


Not even last Thursday's announcement that the Bank of Japan would buy $1.4 trillion in Japanese government bonds in 2013 and 2014 helped much-even though on a relative basis Japan's "stimulus" is more than double what Ben Bernanke has in mind.

So why all of the pain?...

And better yet, which gold mining stocks have fallen so far they are screaming buys right now?

Here's the answer to both questions....

Why Gold Miners are Down Right Now
First, there's the recent decline in gold prices. At today's price gold is close to 20% below its peak in the fall of 2011. In this case, it is simple: Lower gold prices = lower mining shares.

But even that doesn't quite explain the disparity between gold miners and the precious metal itself. The fall in miners' share prices has been much more pronounced than that of gold.

And it's not just their greater leverage to the price of gold that's responsible. Even in periods when gold prices have stabilized or shown moderate strength, gold mining shares have tumbled.

So what gives? The truth is not all gold miners are alike.

In fact, a substantial chunk of this can be put down to ineptitude and shareholder-unfriendliness among the mining companies themselves. For some, there have simply been too many equity raisings at fire sale prices. Too many new projects have run way over budget and resulted in existing shareholders being diluted to hell.

Take the Mount Milligan project of Thompson Creek Metals (NYSE:TC), for instance.

Because the project ran about 100% over the budgeted cost, the company was compelled to sell more than 50% of its projected output to "gold streaming" companies for a low price. It was then forced to carry out repeated dilutive equity issues which hammered the price.

Now even though Mount Milligan appears to be on track to open in September, TC shares are still standing at one quarter of their level two years ago.

Another problem for gold mining stocks is political risk.

Pan American Silver Corp. (Nasdaq: PAAS) for example, not only has almost 20% of its current production in Argentina, its largest capital expansion project in that country has been blocked by the regional government.

Likewise, Yamana Gold Inc. (NYSE: AUY) has an exciting $8 billion project located on the Argentina-Chile border. The problem is Argentina recently began blocking capital exports and has already nationalized a number of companies.

And since mining projects require a massive commitment of capital before resources start to flow, and are relatively cheap and easy to operate once the capital has been spent, committing shareholder resources to the tender mercies of Argentina's Cristina Fernandez is not something anyone should risk.

Then there's plain old cost escalation.

For example, IAMGOLD Corp. (NYSE: IAG) is a promising and growing gold miner with projects in a spread of emerging markets with only moderate risks.

Yet its mining cost rose from $643 per ounce in 2011 to $731 per ounce in 2012.

And while that may sound great given current gold prices of just under $1,600 an ounce, the industry's calculation of mining costs includes nothing for head office or corporate overhead, so the reality is those figures are badly understated. Indeed, a recent analysis of IAMGOLD's true mining cost concluded that it had risen from $1,232 per ounce in the fourth quarter of 2011 to $1,530 in the last quarter of 2012.

At that level, needless to say, it's barely worth bothering to operate and there's certainly nothing there for shareholders. What's clear is that high-cost miners and those with operations in risky countries are inferior investments to the metals themselves.

The Best Gold Mining Stocks
But that doesn't necessarily mean you need to scratch gold miners altogether.

The decline in gold miner share prices has been so great that those with low costs and political stability look cheap--- even compared to the metals.

So whether you buy gold and silver miners at this stage clearly depends on what you think gold and silver prices will do. (Here's a bet they are eventually headed higher.)

On balance, though I think the recommendation depends on where your portfolio is right now.

If you're holding lots of miners, all of them beaten down by losses, then you probably shouldn't buy any more - the investment maxim of not reinforcing failure is a good one.

If you want to prune a few miners from your current portfolio take another look at their mining costs and political risks and prune the high-cost miners and high-risk environments first. But don't sell out altogether; you may well be selling close to the bottom.

But on the other hand, if you have no miners or very few, you should probably load up now. At these prices, there's practically a fire sale going on.

In fact, here are two of my favorite gold miners right now:

■Primero Mining (NYSE:PPP): Primero is a gold and silver miner with two producing mines and a third project in Mexico. The company recently benefited from a favorable ruling in Mexico's tax court, which caused its stock price to jump and indicates that Mexico is a decent place to do business. Cash costs were $636 per gold equivalent ounce in 2012, down from $640 in 2011, and are expected to decline slightly in 2013. Earnings were 54 cents/share in 2012, and the company expects to expand production in 2013. Better yet, Primero trades at around book value and on a trailing P/E of 12 times.
■Freeport McMoran Copper and Gold (NYSE:FCX) Freeport is a larger, more diversified operation that mines copper and gold worldwide with big operations in the U.S. and Indonesia. It trades on 10 times historic earnings, 6.6 times projected earnings and at 1.7 times book value. Better yet, this one pays a hefty dividend yield of 3.8%.

So while gold miners as a group are certainly well-off their highs, at these levels a few select stocks have landed in the bargain bin.

Now I don't know about you, but that's one of my favorite places to shop.

Aside from gold, a massive global shortage is creating a huge opportunity in palladium right now. You might not realize this but palladium is 15 times rarer than platinum and 30 times rarer than gold.

That's creating an opportunity of its own for a small palladium miner that's currently trading under $2.00 a share. This same company is sitting on potentially $600-$700 billion of this precious metal at today's prices. To learn more about this company click here.

Source :http://moneymorning.com/2013/04/10/my-two-favorite-gold-mining-stocks/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 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

6 Critical Money Making Rules