Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

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