Barron's had a good piece on gold mining stocks this weekend. The article highlighted that the sector is down some 50% since gold prices hit their peak in the summer of 2011, even as gold has only declined some 15% over that time frame. Some of the headwinds for the sector include huge strikes in Africa, significant cost inflation in mining and poor management execution in bringing new resources on-line. The article also highlighted several miners managers cited in the article like right now. Here are two that I think are cheap as well.
Gold Fields Limited (GFI) is a gold miner that holds interests in eight operating mines in South Africa, Peru, Ghana, and Australia.
4 reasons GFI is cheap at $8 a share:
- The stock is selling at the very bottom of its five year valuation range based on P/E, P/B, P/CF and P/S.
- GFI is trading for less than 5x forward earnings. It also yields 1.8%.
- Analysts expect the company to increase revenues at just under 20% in FY2013. The three analysts that cover the stock have a median price target of $12.50 (low target: $10.70 high target: $16.50)
- The stock is too cheap at just over book value and around 4.5x operating cash flow.
Yamana Gold Inc. (AUY) has a property portfolio that includes seven operating gold mines, including Chapada mine, Jacobina mining complex, and Fazenda Brasileiro mine in Brazil; El Peñón mine and Minera Florida mine in Chile; Gualcamayo mine in Argentina; and Mercedes mine in Mexico
4 reasons why AUY is a long term bargain at $14 a share:
- The median price target of the 18 analysts that cover the stock is $23 a share, almost 70% above the current price of AUY.
- The company's cost of production is $500/ounce, much lower than some of their competitors in Africa who are running nearer $800/ounce. Yamana had over $500mm in free cash flow in the third quarter of 2012 alone (The company's market capitalization is around $11B).
- Analysts project over 25% revenue growth in FY2013 and another 15% sales increase in FY2014. AUY is selling at the bottom of its five year valuation range based on P/S and P/CF.
- Given those growth expectations, 9x 2014's projected earnings seems cheap. The stock also yields 1.8%.