The Gold Stock Strategist

The Gold Stock Strategist
Contributor since: 2009
Company: Gold Stock Strategist
The tax hit really took Newmont earnings down and surprised everyone. I wish NEM would provide better guidance on items like that. Thanks for reading my piece and for commenting.
Like I wrote in the article, "PE ratios are best used as a 'first cut' in due diligence to see how the market is valuing gold mining companies relative to others in the industry." There are several metrics useful for conducting due diligence on large gold producers. I like to use as many valuation metrics as possible when analyzing gold mining companies for investment including EV to reserves.
Mining industry insiders have historically focused on valuation metrics based on reserves with an eye to acquisition and growing their companies. That makes sense.
Investors have become increasingly interested in cash flow and earnings for all companies--including gold producers--since the 1997 Bre-X gold scandal, the dotcom meltdown in 2001, and the crash of 2008.
Any time someone suggests that earnings metrics like PE are useless for comparing gold producers, I raise an eyebrow. Earnings matter, but they certainly aren't the only thing to look at when assessing whether or not to invest in large gold producing companies.
Other key items to look at in the due diligence process include proven management, reserves in the ground, debt, cash on hand, hedge book, political risk, and currency risk.
Thank you for reading my article and for your comment!
On Jul 02 01:02 PM tc1 wrote:
> I recall motley fool poster TMFSimchiruna's remark:
> "P/E is not a useful valuation metric in the mining industry. Relative
> discounts to NAV or Enterprise Value to Reserves ratios are more
> useful indicators of relative value for this industry."
> Comments, anyone?
> Btw, i appreciate the political and logistical contexts that author
> and readers are providing here.
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