The SPDR Gold Shares ETF (NYSEARCA:GLD) has seen a total increase of roughly 2.8% over the last four trading sessions, which in my opinion is a very respectable gain, considering the behavior of the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) which has resulted in a 3.1% gain over the same period. That said I wanted to examine two gold companies a bit closer based on the following minimum criteria:
- Each Company Must Have Demonstrated Profit Margins Of 25.00%
- Each Company Must Have A Minimum Return On Assets Of 5.00%
- Each Company Must Have A Minimum Return On Equity Of 8.00%
Surpassing the Minimum Requirements
When writing a comparison article that has minimum criteria set forth, I don't like to use companies that just meet the requirements; I'd rather use companies that clearly surpass the minimum requirements. In this article I've highlighted both Barrick Gold Corp. (NYSE:ABX) and NevSun Resources, Ltd. (NYSEMKT:NSU) noting how each surpasses the minimum criteria. Over the last twelve months both companies have exceed profit margins of 25.00%, returns on assets of 5.00% and a return on equity of 8.00%.
A Breakdown of Barrick Gold
Shares of Barrick Gold trade in a 52-week range of $31.00/share (52-week low) and $55.95/share (52-week high), carry a P/E ratio of 7.18 and currently yield 2.4 % ($0.80). Analysts are expecting ABX to earn $1.11/share on revenue of $3.84 billion for the September 2012 quarter.
There are three things I currently like about ABX at these levels. First the company has demonstrated profit margins of 30.35% over the last twelve months, which is almost 9.4 times that of its industry counterpart Newmont Mining (NYSE:NEM), which has only demonstrated profit margins of 3.23% over the same period. Secondly, the company has demonstrated a very nice return on equity of 18.69% over the last 12 months and when compared to that of IAMGOLD (NYSE:IAG) which only demonstrated a return on equity of 12.57%, that's nearly a 32.7% better return. Lastly, the company trades at a P/E ratio of 7.14 and carries a beta of 0.27, which means that not only is the stock affordable but it acts independent of the behavior of the benchmark index it is generally compared to (in this case ABX is compared to that S&P 500).
There is something of late that concerns me and it could end up being a long term catalyst if something isn't done to fix the situation sooner. So far, the situation at the world's highest altitude gold mine hasn't been a good one and could end up costing ABX as much as $3 billion by the end of the year and may end up costing as much as much $8 billion by the time gold is expected to be extracted in mid-2014. If ABX is able to begin at least the extraction part of the process by mid-2013, we may in fact see progress ahead of schedule, however I don't believe that will happen and continued delays at the Pascua-Lama property could reduce profit margins and hurt the stock over the next 12-24 months.
A Breakdown of Nevsun Resources
Nevsun Resources Ltd. - Shares of Nevsun Resources trade in a 52-week range of $2.68/share (52-week low) and $7.30/share (52-week high), carry a P/E ratio of 4.48 and currently yield 3.2% ($0.10). Analysts are expecting NSU to earn $0.16/share for the June 2012 quarter.
When it comes to NSU there are four things I think will be excellent catalysts to consider during the second half of 2012. First and foremost, the company has demonstrated profit margins of 27.46% over the last twelve months, which is almost 6.5 times that of its industry counterpart Franco-Nevada Corp. (NYSE:FNV), which has only demonstrated profit margins of 4.24% over the same period. Secondly, the company trades at a very low P/E ratio of 4.48 and carries a yield of 3.2%, which means that not only is the stock affordable but it's a great income play at current levels. The third catalyst to be considered is the fact that the company has recently demonstrated an excellent return on equity of 66.31% over the last 12 months and when compared to that of Golden Star Resources (NYSEMKT:GSS) which only demonstrated a return on equity of 0.25%, which equates to return on equity that is roughly 265 times better than that of its industry competitor. Lastly, the company announced an increase in its copper, zinc and gold reserves which should boost the intrinsic assert value of the company during the second half of the year.