Commodities & Metals

A Value Walk Among Gold Stocks

Jon C. Ogg

Gold is not having a good year again so far in 2014, and the recent trends from the World Gold Council seem to indicate that the old path to $2,000 gold is just not in the cards any time soon. But with the European Central Bank expected to adopt a zero-rate policy — or worse, negative rate environment — we wanted to take a look at how Wall Street is valuing the gold mining sector. Silver too.

Perhaps the biggest trick in valuing a gold miner or a gold royalty company is that you sort of have to have an idea of where the price of gold will be in a one-year to five-year horizon. Without an opinion on that matter, you quite simply have no way of valuing each company’s existing gold holdings and its reserve holdings in the ground that have not yet been mined.

Now we have to consider that some mining mergers have been pondered of late, a move that would allow some companies to focus on only their lowest-cost mining and production sites and idle or decrease production at their higher-cost sites. Newmont Mining Corp. (NYSE: NEM) and Barrick Gold Corp. (NYSE: ABX) were rumored to be in broken-down merger talks, and those talks could be rekindled under the right circumstances.

24/7 Wall St. has done a value review of several key gold (and silver, of course) mining and royalty players we follow. We have looked at what their stated book value is, as well as forward price-to-earnings (P/E) ratios for 2015. Also included is how the stocks have done, as well as where analysts think the stock is headed.

SEE ALSO: Global Gold Demand Far Better Than Gold Prices Indicate

Again, anything tied to gold royalties, mining and production is likely going to be associated with the price of gold. If gold falls to less than $1,000 by the end of 2015, then it is going to be a tough 18 months. But if gold stabilizes or rises, then these battered stocks may offer some value for selective investors.