Dundee Securities Analyst: Barrick Gold and HudBay Minerals 'Oversold'

Barrick Gold Corp. (ABX) and Hudbay Minerals Inc. (HBMFF.PK) have been tagged with an "oversold" moniker by Dundee Securities.

Paul Burchell, Dundee's mining analyst said:

The recent selloff in the commodities market has led to steep declines in the share price of numerous mining companies. We believe that several of the equities are now trading at deep discounts relative to their underlying commodities, and offer attractive bargains at current levels.

One such stock is Barrick which has fallen almost 45% from C$52.47 on July 15 – the day that gold last peaked –  to C$29.75 at Thursday's close. During the same period, gold prices have only declined 20% from $977 per ounce to current levels of around $775 per ounce.

Mr. Burchell said Barrick looks inexpensive in almost all valuation metrics. Traditionally, the gold sector sees price/earnings ratio of between 20 and 30 but Barrick currently trades at a 2009 P/E ratio of 10.2, he told clients. 

Meanwhile, Barrick's price to cash flow ratio of 6.9 compared to traditional cash flow multiples of 12x to 15x, while Barrick's 1.1 price to net asset value ratio is "far lower than the usual 1.5 to 2.0 multiples awarded to the large cap gold producers."

He added:

Perhaps most telling is the contrast between the current gold price environment and that when Barrick last traded at current levels. We have to go back to June 2005 with gold at $425 per ounce to find Barrick trading at around C$28 per share.

Hudbay Minerals is another miner that Mr. Burchell said long-term investors should take a look at based on the current stock price.  

He wrote:

We believe that the current share prices of base metal producers do not reflect the fundamentals of base metal prices or the supply/demand picture for base metals.  Share prices do not reflect the fundamental value of a share as a portion of the future cash flows of the company.

He said that Hudbay, which has slumped to a price lower than when Mr. Burchell initiated coverage on the company in February 2006, has "a growth profile that it can fund from its own cash balance (estimated cash per share FD, $5.29), and a negative C1 cash cost for zinc."

Comments

[Marc Courtenay:]

The numbers mentioned on ABX correlates well with a number of other gold and precious metals producers, which is the markets way of saying "watch out below". It might be oversold, but on the other hand, with the LEH mess and the depth of the banking crises, gossip is flying that some loans to more hedge funds will be called in and more forced liquidations ensue. If that happens commodities could tumble further, especially energy and precious metals. Tomorrow might be ugly (no more than a 50-50 chance) and if it is it would give Bernanke and the Plunge Protection Team the excuse they need to cut interest rates on Tuesday, which could be very, very good for precious metals prices. We should all keep some of our powder dry.

2008 Sep 14 01:49 PM