Can Allied Nevada Gold Corp. Bounce Back From Collapsing Gold Prices?

Jun.25.13 | About: Allied Nevada (ANV)

Over the past decade, gold has been one of the best performing investments as global uncertainty had investors fleeing to this precious metal for safety. For gold mining companies like Allied Nevada Gold Corp. (NYSE: ANV), this was fantastic as its gold mines exploded in value. Between 2009 and 2012, Allied Nevada's share price went up nearly seven times to reflect this added value. However, the glory days for gold investing seem to be ending and prices are starting to come back to earth. The world economy is finally getting back on track while inflation continues to remain low. As a result, gold has lost about 17% over the past few months and could lose more.

This is particularly bad timing for Allied Nevada as the company just recently completed several brand new mines in Nevada. The company took on a fair amount of debt for this project and its bad luck that construction completed right when the gold market collapsed. With lower gold prices expected in the future, the present value of these mines is now a lot less and investors are fleeing Allied Nevada's stock. Its share price has fallen nearly 75% over the past 6 months.

The good news for Allied Nevada is that it's still looking stable after all is said and done. The company still runs at a steady profit margin. To counter out lower gold prices, the company has started mining more to keep revenues up. The company grew revenues by about 25% over the past year through more production.

Allied is also attractive because its large gold deposits are largely untapped. Many gold mines are fairly depleted after the last few decades of mining and discoveries of new deposits are getting rare. This would put Allied Nevada in an attractive position should gold prices ever recover.

In addition, this stock was sold so much over the past few months, its current price really just reflects the current value of its mines and doesn't attach any value to the unfound deposits still in these areas. If Allied Nevada continues to find more sources of gold and silver in this area, this would be value that hasn't been priced in the stock.

The stock took quite a hit, but it's unlikely to fall much further unless Allied Nevada runs into serious operational problems. Investors should keep an eye on the company's financial statements to make sure costs and revenues stay in line, but right now figures look pretty respectable. The market isn't what it used to be for gold, but Allied still looks like it can still deliver a profit.

It was hard to go wrong with gold investments over the past few years but those days seem to be over. If you want to invest in gold, you need to dig a little bit deeper and expect more issues. While Allied Nevada could still run into more problems as a company, it seems to have handled a bad situation fairly well which sets a decent base for a future recovery.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.