Gold miners face two major problems: rising costs and declining ore grades. With extraction costs rising, ore quality diminishing and gold prices falling, it is little wonder that miners’ stocks have collapsed. But a bigger problem is that gold miners, like oil companies, need to spend vast amounts of cash on finding and developing new prospects. Now that worries about “peak oil” have dissipated, there is a new threat: peak gold.
We wanted to see if there is any value in gold mining stocks, or just value traps. Here is a closer look at four miners and one royalty company.
Goldcorp Inc. (NYSE: GG) stock is down about 44% over the past 12 months. Of the four gold mining stocks we are looking at, it has shown the best performance. Goldcorp invested heavily in new properties during the run-up in gold prices and has been taking impairment charges as those prices now fall. The stock closed at $21.06 on Friday, and the consensus analyst price target of around $30.95 implies a potential upside of about 47%. Shares have traded in a range of $20.74 to $38.87 over the past year. With a fiscal year 2014 earnings per share estimate of $1.06, it is valued at nearly 20 times next year’s expected earnings.
Barrick Gold Corp. (NYSE: ABX) has seen shares fall about 54% in the past year. The company’s founder and chairman said last week that he is stepping down at the company’s annual meeting next spring. Of all the gold miners, Barrick probably was the most aggressive spender, and it is now paying the price in impairment charges. The stock closed on Friday at $15.40, and the price target is around $20, for an implied gain of 30%. Shares have traded in a range of $13.43 to $36.08 over the past 12 months. Fiscal year 2014 earnings per share are estimated at $2.02, and the stock is valued at about 7.6 times expected earnings.
Newmont Mining Corp. (NYSE: NEM) shares have dropped 48% in the past 52-weeks. Like Barrick and the others, Newmont pays its dividends by taking on more debt and issuing more shares. All the miners have been under pressure to return more value to shareholders, and this is the way they have been forced to do it. The stock closed at $23.02 last Friday, and the consensus price target for the shares is around $30.90, indicating a potential upside of 34%. The 52-week trading range on the stock is $22.97 to $47.59. With a fiscal year 2014 earnings per share estimate of $1.72, the stock is valued at about 13.4 times expected earnings.
Yamana Gold Inc. (NYSE: AUY) has suffered a 52% drop in its share price over the past year. Yamana reported a weak third quarter, although it was able to lower its all-in costs to below $1,200 an ounce. Only a couple of other, smaller miners have been able to do that. The stock closed Friday at $8.51, and the price target is around $12.20, for an implied upside of 43%. The stock’s 52-week trading range is $8.31 to $18.23. At a fiscal year 2012 earnings per share estimate of $0.51, Yamana is valued at 16.7 times expected earnings.
Royal Gold Inc. (NASDAQ: RGLD) is down 45% over the past 12 months. Royal Gold is not a miner, but rather an investor in production streams. The company recently raised its dividend, but its dividend yield is still only 1.7%. The stock closed at $44.15 on Friday, and the consensus price target of around $64 calculates to an implied gain of 45%. Royal Gold’s 52-week trading range is $38.63 to $84.08. At a fiscal year 2014 earnings per share estimate of $1.89, the stock is valued at about 23.3 times expected earnings.
At this time it is hard to spot a value choice among the gold mining stocks. All closed on Friday much closer to their annual lows than to their highs. Recent positive news on the economy has sent investors to equities, although the impact of a Fed cut in its asset purchasing program could lead to a burst of enthusiasm for gold.
Just based on the numbers, Barrick seems way undervalued at less than eight times future earnings, and its implied gain of 30% is the lowest of any of these stocks, including Royal Gold. But if Barrick is the best house in a bad neighborhood, do you really want to live there?
Looking at some of the other miners and streaming companies with market caps of at least $3 billion, there seems to be little value there either. Here is a quick overview.
Randgold Resources Inc. (NASDAQ: GOLD) closed Friday at $65.44, in a 52-week range of $60.17 to $104.14. The consensus price target is around $94.60, for an implied gain of about 45%.
Franco-Nevada Corp. (NYSE: FNV), another streaming company, closed at $37.39 on Friday, in a 52-week range of $31.54 to $59.03. The price target is around $41.70, for an upside potential of 11.5%. The stock trades at almost 35 times its forward multiple.
Kinross Gold Corp. (NYSE: KGC) closed at $4.54 on Friday, in a 52-week range of $4.47 to $10.10. The price target is around $6.10, for an upside potential of about 36%.
AngloGold Ashanti Ltd. (NYSE: AU) closed at $12.02 on Friday, in a 52-week range of $11.62 to $31.88. The price target is $18.10, for an implied gain of 50%.
Agnico Eagle Mines Ltd. (NYSE: AEM) closed at $25.45 on Friday, in a 52-week range of $23.77 to $54.84. The price target is around $32.75, for an upside potential of about 28.7%. The stock’s forward multiple is a heady 30.
Eldorado Gold Corp. (NYSE: EGO) closed Friday at $5.56, in a 52-week range of $5.45 to $13.87. The price target on the stock is around $9.20, for an implied gain of almost 69%.