6 Mining Stocks With Strong Fundamentals Trading Below Consensus Estimates

by: David Alton Clark

These six strong gold and silver stocks have above industry average profit margins, good fundamentals and are trading significantly below consensus estimates. These are bullish indicators regarding a stock's possible future performance.

Nonetheless, this is only the first step in finding winners for your portfolio. Now that we have cut the wheat from the chaff, let’s take a closer look to distinguish the driving factors behind these remarkable statistics and ensure the stories are intact. When investing in gold or silver, the choices are vast. The array of selections is bars, coins, jewelry, futures and options contracts, exchange-traded funds and mining company equities. Today we are focusing on the mining companies. Gold and silver are currently experiencing phenomenal increases in valuation.

Below are four tables (click to enlarge images) with detailed statistics regarding company summaries, price performance, fundamentals, earnings and dividends, followed by a brief analysis of each company's current events. Please use this as a starting point for your own due diligence.

Summary Statistics

Price Performance Statistics

Fundamental Statistics

Earnings and Dividend Statistics

Company Reviews

Barrick Gold Corporation (NYSE:ABX) - Engages in the production and sale of gold, as well as related activities, such as exploration and mine development. The company has a portfolio of 25 operating mines and a pipeline of projects located in North America, South America, the Australia Pacific region, and Africa. It also produces copper and holds interests in oil and gas properties located in Canada. The company was founded in 1983 and is based in Toronto, Canada.

Barrick is the world’s largest gold producer. The company also has the largest reserves in the industry, with about 140 million ounces of proven and probable gold reserves, 6.5 billion pounds of copper reserves and 1.07 billion ounces of silver contained within gold reserves1 as of December 31, 2010. Barrick’s vision is to be the world’s best gold mining company by finding, acquiring, developing and producing quality reserves in a safe, profitable and socially responsible manner. Barrick’s strategy is focused on maximizing shareholder value by building gold and copper reserves through exploration, investing in high return development projects, realizing the potential of existing mines, pursuing disciplined acquisitions and strengthening its social and environmental performance.

Peter Munk, the Founder and Chairman of ABX recently stated,

Barrick’s remarkable performance led not only to record earnings, but also to record margins and cash flow. Thanks to the strength of our balance sheet, we were able to increase our dividend by 20%. Barrick’s share price, up 35% in 2010, outperformed both the price of gold and our peer group. Meanwhile, our gold reserves now total 140 million ounces. And as the price of gold climbs, those reserves become increasingly valuable. Whether it’s a question of financial strength or fiscal responsibility, basic operations or long-term strategic execution, Barrick’s track record is unmatched. For eight years in a row we have met or surpassed our annual targets.

First quarter results will be released April 27th before market open.

The company is trading below analyst’s estimates. ABX has a median price target of $63.38 by 19 brokers and a high target of $79. On Nov 23, 2010 HSBC Securities initiated coverage on the company with an Overweight rating. Please review the illustration for ABX’s summary and key statistics.

Eldorado Gold Corporation (NYSE:EGO) - Engages in the exploration, development, mining, extraction, processing, reclamation, and production of primarily gold and iron properties. It owns and operates the Kisladag gold mine in Turkey; and the Tanjianshan, Jinfeng, and White Mountain gold mines in China, as well as the development projects, including the Efemcukuru gold project located in Turkey, the Eastern Dragon gold project in China, the Perama Hill gold project in Greece, and the Vila Nova iron ore project in Brazil. The company was formerly known as Eldorado Corporation Ltd. and changed its name to Eldorado Gold Corporation in April 1996. Eldorado Gold Corporation was founded in 1992 and is headquartered in Vancouver, Canada.

EGO’s goal is to produce approximately 1.5 million ounces of gold annually in 2015. As one of the lowest cost gold producers, with new mines, robust margins and a strong balance sheet, EGO is well positioned to grow in value as the company creates and pursues new opportunities in gold and other resources.

Eldorado recently acquired ownership over 2,340,000 units of Serabi Mining plc on March 30, 2011, pursuant to the initial public offering of Serabi by way of long form prospectus. Each Unit is comprised of one ordinary share and one-half of one ordinary share purchase warrant. Each Warrant entitles the holder thereof to acquire one ordinary share at a price of Cdn $0.75 per ordinary share until December 2, 2012. The ordinary shares acquired by the offeror in connection with the Serabi IPO, together with the warrants represent approximately 5.5% of the issued and outstanding Ordinary Shares of Serabi assuming no other warrants or securities are exercised.

Paul N. Wright, President and Chief Executive Officer recently stated regarding Q4 results,

We have operated to plan and are extremely pleased with our strong performance. Our earnings increased 31% and our cash flow increased 40% compared to Q4, 2009.


Construction at both Efemçukuru and Eastern Dragon are progressing and we look forward to production from both mines during 2011.

Eldorado Gold Corporation will release its 2011 first quarter financial results after the close of market on Thursday, May 5, 2011.

The company is trading below analyst’s estimates. EGO has a median price target of $22 by 15 brokers and a high target of $28. On Mar 23, 2010 Global Hunter Securities initiated coverage on the company with a Sell rating. Please review the illustration for EGO’s summary and key statistics.

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) - Engages in the exploration, mining, and production of mineral resources. It primarily explores for copper, gold, molybdenum, silver, and cobalt deposits. The company holds interests in various properties located in North and South America; Grasberg minerals district in Indonesia; and Tenke Fungurume minerals district in the Democratic Republic of Congo. As of December 31, 2009, its consolidated recoverable proven and probable reserves totaled 104.2 billion pounds of copper, 37.2 million ounces of gold, 2.59 billion pounds of molybdenum, 270.4 million ounces of silver, and 0.78 billion pounds of cobalt. Freeport-McMoRan Copper & Gold Inc. was founded in 1987 and is headquartered in Phoenix, Arizona.

Net income attributable to common stock for fourth-quarter 2010 was $1.5 billion, $3.25 per share, compared to net income of $971 million, $2.15 per share, for fourth-quarter 2009. Net income attributable to common stock for the year 2010 was $4.3 billion, $9.14 per share, compared to $2.5 billion, $5.86 per share, for the year 2009. Consolidated sales from mines for fourth-quarter 2010 totaled 941 million pounds of copper, 590 thousand ounces of gold and 17 million pounds of molybdenum, compared to 989 million pounds of copper, 551 thousand ounces of gold and 16 million pounds of molybdenum for fourth-quarter 2009. Consolidated sales for the year 2010 totaled 3.9 billion pounds of copper, 1.9 million ounces of gold and 67 million pounds of molybdenum, compared to 4.1 billion pounds of copper, 2.6 million ounces of gold and 58 million pounds of molybdenum for the year 2009. Consolidated sales from mines for the year 2011 are expected to approximate 3.85 billion pounds of copper, 1.4 million ounces of gold and 70 million pounds of molybdenum, including 840 million pounds of copper, 325 thousand ounces of gold and 17 million pounds of molybdenum for first-quarter 2011.

On March 31, 2011, FCX declared a cash dividend of $0.25 per share payable on May 1, 2011 to holders of record as of April 15, 2011 for its common stock. FCX announced on February 24, 2011 that it has issued a notice to redeem all of its outstanding 8.25% Senior Notes due 2015 on April 1, 2011. Approximately $1.1 billion aggregate principal amount of Notes is currently outstanding.

James R. Moffett, Chairman of the Board, said,

We are pleased to report record quarterly and annual financial results and substantial reserve additions. We look forward to continued strong operating results across our global operations and to the advancement of our attractive development projects as we grow our production and enhance our asset values. Our strong financial position and positive outlook will enable us to invest in economically attractive growth projects while providing strong cash returns to shareholders.

The company is trading below analyst’s estimates. FCX has a median price target of $67 by 15 brokers and a high target of $79.25. On Jan 7, 2011 Canaccord Genuity upgraded the company from Hold to Buy. Please review the illustration for FCX’s summary and key statistics.

Newmont Mining Corporation (NYSE:NEM) - Together with its subsidiaries, engages in the acquisition, exploration, and production of gold and copper properties. Its assets or operations are located in the United States, Australia, Peru, Indonesia, Ghana, Canada, New Zealand, and Mexico. As of December 31, 2009, Newmont had proven and probable gold reserves of approximately 91.8 million equity ounces and an aggregate land position of approximately 33,400 square miles. The company was founded in 1916 and is headquartered in Greenwood Village, Colorado.

NEM has many positives; production growth, reserves and exploration upside potential, balance sheet strength, positive project returns and a gold price-linked dividend. NEM expects to achieve approximately 7 million ounces of annual gold production and 400 million pounds of annual copper production by 2017, representing approximately 35% and 90% growth, respectively, from the company's expected 2011 production outlook. Internal rates of return on key strategic projects are expected to average greater than 20% at current metals prices. Capital expenditures associated with these projects are estimated at approximately $7 billion in aggregate over the next 6-7 years, substantially funded through anticipated free cash flow and existing balance sheet strength.

The company currently has approximately 93.5 million ounces of gold in reserves and 37.5 million ounces in non-reserve mineralization, as well as the potential to add the equivalent of the company's current reserves over the next decade. Available cash and marketable securities was approximately $5 billion at December 31, 2010 (before the use of approximately $2 billion in the Fronteer transaction and net cash flow generated in the first quarter of 2011); the company also anticipates strong free cash flow at planned production levels and current metals prices. Newmont's gold price-linked dividend policy contemplates a quarterly payable dividend based on Newmont's average realized gold price for the preceding quarter.

"Newmont offers investors a powerful combination of organic growth potential from projects that can be developed with competitive returns and significant exploration upside," said Richard O'Brien, President and Chief Executive Officer. "With our strong balance sheet and cash flow, we are positioned to fund profitable growth and to pay a new gold price-linked dividend." In 2007, Newmont became the first gold company selected to be part of the Dow Jones Sustainability World Index.

The company is trading below analyst’s estimates. NEM has a median price target of $72.50 by 16 brokers and a high target of $89. On Nov 23, 2010 HSBC Securities initiated coverage on the company with an Overweight rating. Please review the illustration for NEM’s summary and key statistics.

Silver Wheaton Corp (NYSE:SLW) - Together with its subsidiaries, operates as a silver streaming company worldwide. It has 13 long-term silver purchase agreements and 2 long-term precious metal purchase agreements whereby the company acquires silver and gold production from the counter-parties located in Mexico, the United States, Greece, Sweden, Peru, Chile, Argentina, and Portugal. The company is headquartered in Vancouver, Canada.

Based upon SLW's current agreements, the forecast for 2011 production is 27 to 28 million silver equivalent ounces, including 15,000 ounces of gold. By 2015, annual attributable production is anticipated to increase significantly to approximately 43 million silver equivalent ounces, including 35,000 ounces of gold. Beyond the initial upfront payment, no ongoing capital expenditures are required to generate this growth and Silver Wheaton does not hedge its silver production. SLW’s industry-leading growth profile is driven by a portfolio of world-class assets, including silver streams on Goldcorp’s Peñasquito mine in Mexico and Barrick’s Pascua-Lama project straddling the border of Chile and Argentina. The company’s unique business model creates significant shareholder value by providing considerable leverage to increases in the silver price while reducing the downside risks faced by traditional mining companies. Silver Wheaton has an experienced management team with a strong track record of success and is well positioned for further growth.

Peter Barnes, SLW’s Chief executive officer states,

In 2010, we set new records on all operating and financial metrics, including attributable production, reserves and resources, sales, cash flows and earnings. Thirty-seven percent production growth, coupled with an 80% increase in the price of silver, resulted in a near doubling of cash flows, to over $319 million, clearly demonstrating SLW’s strong leverage to increasing silver prices. Now, with a market capitalization of over $14 billion, we capture a significant share of all the silver industry investment globally, and your company is one of the largest and most successful silver companies in the world.

The company is trading below analyst’s estimates. SLW has a median price target of $48.75 by 12 brokers and a high target of $54. On Mar 4, 2011 Canaccord Genuity downgraded the company from Buy to Hold. Please review the illustration for SLW’s summary and key statistics.

Silvercorp Metals Inc. (SVM) - Engages in the acquisition, exploration, development, and operation of silver mineral properties in China and Canada. The company involves in developing and operating silver, lead, and zinc mines in the Ying Project, the HPG Project, the TLP Project, and the LM Project in the Henan Province of China, as well as the GC Project in the Guangdong Province. It also has interests in the Silvertip project in northern British Columbia, Canada. The company was formerly known as SKN Resources Ltd. and changed its name to Silvercorp Metals Inc. in May 2005. Silvercorp Metals Inc. is headquartered in Vancouver, Canada.

Silvercorp is China's largest primary silver producer and has achieved an enviable five-year track record of being the lowest cost producer of silver among its industry peers. In the Third Quarter of FY2011 (ended Dec. 31, 2010), the company produced silver at a cash cost of negative $7.13 per ounce. At the same time, the company is growing its resource base through continuous exploration of existing projects as well as seeking to acquire new development projects in multiple jurisdictions. It is one of only a handful of precious metals producers to pay shareholders a dividend (C$0.02 per share per quarter). Now with US$224-million in cash, no long-term debt, strong operations and the lowest production costs among its global industry peers, and unprecedented volatility, the market is ripe with opportunities for SVM to grow its business in the long term.

For the third quarter of fiscal 2011, Silvercorp posted record net income of $29.7 million, or $0.18 per share, representing a 140% increase compared to the same quarter last year of $12.4 million or $0.08 per share. Excluding all non-operational items, which mainly consisted of a $3.3 million dilution gain on our investment in New Pacific Metals Corp., an affiliate of the company and a $3.7 million gain on holding of held-for-trading financial assets, the adjusted net earnings were $22.2 million, or $0.13 per share.

The company is trading below analyst’s estimates. SVM has a median price target of $15.25 by 3 brokers and a high target of $16.50. On Jan 18, 2011 BMO Capital Markets upgraded the company from Market Perform to Outperform. Please review the illustration for SVM’s summary and key statistics.

These stocks are performing at a high level, have positive growth projections, profit margins, great fundamentals, and intact stories. Furthermore, they are all well positioned to benefit from burgeoning global demands spurred by numerous positive catalysts for gold and silver. Some mummers of bubble like conditions in precious metals has begun, nevertheless these equities appear to have significant upside potential and offer an excellent safe haven to counter possible inflation due to many central banks injecting high levels of liquidity into the market to stimulate economic growth, in my opinion.

I will continue monitoring these stocks further to determine the precise timing to create a position. Scaling in to the position over a period of time will reduce risk.

Information was gathered from CNBC, Yahoo Finance and respective company websites.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FCX, ABX, SLW, SVM, NEM, EGO over the next 72 hours.