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
The Federal Reserve And Drug Addiction – A Prediction - 27th Jun 17
Charts Show Why Emerging Markets Will Be an Essential Part of Your Portfolio Going Forward - 27th Jun 17
Former Lehman Brothers Trader: I Bet My Reputation That Stocks Bubble Will Pop In A Year - 27th Jun 17
US Bonds and Related Market Indicators - 27th Jun 17
Stocks At Record Highs: Market Sentiment Still Bullish - 27th Jun 17
Stock Market Running Out of Steam - 27th Jun 17
Gold Back With A Vengeance As Bitcoin Bubble Bursts - 26th Jun 17
Crude Oil Trade & Nasdaq QQQ Update - 26th Jun 17
Gold and Silver Ongoing Consolidation May End Soon - 25th Jun 17
Dollar May Become “Local Currency of the U.S.” Only - 25th Jun 17
Sheffield Great Flood of 2007, 10 Years On - Unique Timeline of What Happened - 24th Jun 17
US Stock Market Correction Could be Underway - 24th Jun 17
Proof That This Economic Recovery Narrative is False - 24th Jun 17
Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - 24th Jun 17
Gold Summer Doldrums - 23rd Jun 17
Hedgers Net Short the Euro, US Market Rotates; 2 Horsemen Set to Ride? - 23rd Jun 17
Nether Edge By Election Result: Labour Win Sheffield City Council Seat by 132 Votes - 23rd Jun 17
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

Market Oracle FREE Newsletter

The MRI 3D Report

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

© 2005-2017 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