Seeking Alpha
Large-cap, deep value, dividend investing, event-driven
Profile| Send Message|
( followers)  

Summary

  • My most recent stock screen includes gold mining stocks with market caps over $1 billion, P/B ratios under 2.5 and forward P/E ratios under 10.
  • At their current price levels both Sibanye and Harmony possess attractive fundamentals and technicals.
  • It should be noted that any drop in the price of gold below $1200/oz. could begin to spell trouble for both of these gold miners.

When it comes to value investing, one of the best ways to determine value is by looking at a stock's price-to-book ratio, better known as its P/B ratio. A low P/B ratio can mean two things as my fellow SA colleague Kevin Quon had once noted, "when a company's P/B is below 1, the more likely it is that a company has either overvalued its assets or is trading at a discount towards an accurate worth of its present condition."

Given the fact that both the SPDR Gold Shares ETF (NYSEARCA:GLD) and Market Vectors Gold Miners ETF (NYSEARCA:GDX) have risen 5.92% and 18.88%, since the 1st of this year, I think there may be a potential for investors to find hidden value within a number of gold mining stocks that also offer investors a fairly attractive yield of at least 3.5%.

(click to enlarge)

For this article, I not only wanted to find gold miners with a market cap of at least $1 billion but also firms that were carrying a P/B ratio of 2.5 or under, and a forward P/E ratio of 10 or under. After reviewing the above mentioned criteria I found two gold miners that might be worth a closer look.

#1 Sibanye Gold Limited (NYSE:SBGL) - Headquartered in South Africa, Sibanye Gold Limited is a gold mining company that owns and operates underground and surface gold operations throughout South Africa. Its principal properties include the Driefontein operation (which covers approximately 8,561 hectares), the Kloof operation in the West Witwatersrand region (which covers approximately 20,087 hectares), and the Beatrix operation in the Free State province (which covers an area of approximately 16,821 hectares).

On Wednesday, shares of SBGL, which currently possess a market cap of $2.29 billion, a P/B ratio of 2.09, a forward P/E ratio of 9.57, and a dividend yield of 4.57% ($0.47), settled at a price of $10.28/share.

Based on a closing price of $10.28/share, shares of SBGL are trading 0.46% below their 20-day simple moving average, 0.58% below their 50-day simple moving average, and 37.88% above their 200-day simple moving average. It should be noted that these numbers indicate a short-term downtrend and long-term uptrend for the stock, which generally translates into a selling mode for most near-term traders and a buying mode for many long-term investors.

When it comes to Sibanye, not only do the company's fundamentals and technicals impress me, the fact its management is dedicated to taking a proactive approach to cost-cutting while maintaining stronger free cash flows and a higher dividend yield versus its sector-based peers also impresses me.

#2 Harmony Gold Mining (NYSE:HMY) - Headquartered in South Africa, Harmony Gold Mining Company Limited is engaged in the exploration, extraction, processing, and smelting of gold in South Africa and Papua New Guinea. The company also explores for uranium, silver, copper, and molybdenum and has a total of 11 underground operations as well as various surface operations, including an open cast mine and 8 processing plants, which are located in goldfields in the Witwatersrand basin of South Africa, as well as the Kraaipan Greenstone Belt. In addition to those assets, the company also owns interests in the Hidden Valley open-pit gold and silver mine, the Wafi-Golpu project, and a 100% interest in 3 exploration projects consisting of the Mount Hagen in the Western Highlands, Amanab in the Sandaun province, and Tari in the Southern Highlands province of Papua New Guinea.

On Wednesday, shares of HMY, which currently possess a market cap of $2.29 billion, a P/B ratio of 0.45, a forward P/E ratio of 9.34, settled at a price of $3.12/share.

Based on a closing price of $3.12/share, shares of HMY are trading 4.17% above their 20-day simple moving average, 5.89% above their 50-day simple moving average, and 2.97% above their 200-day simple moving average. It should be noted that these numbers indicate both a short-term and long-term uptrend for the stock, which generally translates into a buying mode for many long-term investors.

When it comes to Harmony, not only do the company's fundamentals and technicals look promising, but the fact that the company swung to a profit during the third quarter on the heels of improved gold production (+8.7% on a year-over-year basis) also impressed me.

Conclusion: Although both look pretty inexpensive given their low-end P/E ratios and subsequent P/B ratios, I'd still keep a watchful eye on the price of gold, since any drop below $1200/oz. could begin to spell trouble for both of these gold miners. If, on one hand, we begin to see an uptick in the price of gold, I'd look to strengthen my position in any of the above mentioned gold miners. If, on the other hand, the price of gold continues to trade lower and fall beyond the $1200/oz. threshold, I'd begin to seek out alternative options.

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

Source: 2 South African Gold Mining Stocks To Consider From A Value Perspective