Sunday, January 16, 2011

Gold Miners Analysis - Part 1

Following the recent rise in gold price (although tempered lately) I wanted to do an analysis of the companies most affected by the price of the shiny metal - gold miners. I have identified 14 of them and below are some charts, comments and a comparison table for the fundamentals for the first 4. Other posts will add the analysis for the other companies. 


I was surprised to find out that none of these companies have serious dividends. They all pay around 1%. For some reasons, I thought that it would be closer to the rates paid by utilities. In my opinion, this would make it hard for me to add them to a long term portfolio since dividends make are a big part of long term gains. In addition, most of these stocks are extremely volatile.


In any case, here is the analysis. The companies are listed in alphabetical order (based on the ticker symbols). 


Barrick Gold Corp (ABX)


Barrick produces gold, some copper and is also involved with oil and gas in Canada. It's mines are mainly located in America (North and South), Africa and Australia. In essence, it is not a pure gold play. The company has a market cap of close to $47 Bil so a large cap. 


ABX was up 35% in 2010, but 2011 has not been kind to the company as the stock is down close to 12%.




Even though it is not a pure gold play, the stock price has been tracking the price of gold very closely over the last 12 months. The latest correction can actually be seen as a retracement back to normal as it had run ahead of gold the last 2 months of last year. (Gold price is in orange, the stock price in blue)




Currently, the stock is in technical hell. It has breached its 50 day MA and is only about $1 from the next support level at the 200 day MA. 




The only "bullish" indicator is the long trend indicator (gray line in the bottom chart) but it moves very slowly and the trend over the last 12 months is still positive. But the stock is clearly in a correction period. Fibonacci retracements also point to support around the 200 day MA (around $46) but after that, it's a big drop to the next support line at $40. Given the close correlation with the price of gold, it seems that gold prices will have a big impact on the stock prices.


With a current P/E of 17.7, a forward P/E of 11.9 and a PEG ratio at 0.45, the stock is not that expensive. In addition, earning growth for the next 5 years is predicted to be around 25%. Net margins are higher than industry average as well. A lot of that will of course be impacted by the price of gold.


AgniCo Eagle Mines Ltd (AEM)


AEM is a pure gold producer. The operate mines in Canada, Mexico and Finland. They also have exploration activities in North and South America and Europe. The company has market cap of $11.62 billions. 


The stock had a great year in 2010 gaining over 45%, but like ABX, 2011 is starting badly. The stock is down over 10%, going in the opposite direction of the market.




Just like ABX, the stock is tracking the price of gold closely and once again, the latest correction seems to be more like a return to normal valuation. 



This stock is also in technical hell - I give it a rating of 2 out of 10! All the indicators but for the long term trend (barely) point to further pain. In addition, the 50 MA is taking a downward inflection. There is some good trend (200 day MA) and Fibonacci support around $66.


With a P/E of 38.48 and a forward P/E of 23.24, this stock is not cheap. Especially considering that the growth rate for the next 5 years is predicted to be only around 10% which is below average for the industry. Profit margins are above industry average which helps, but this is a stock that will depend more greatly on the price of gold to advance much further.

AngloGold Ashanti ADR

AngloGold has mining and exploration operations in about every gold producing region in the world. Besides gold, it also produces small quantity of silver and uranium oxide. It has a market capitalization of $17.14 billions.

AU didn't have as good of year as the other gold producer. in 2010, it was up 22% but is already down over 9% for 2010.


For a large gold producer, it is lagging the price of gold badly - around 14% over the last 12 months and the gap has opened up dramatically over the last couple of months. FY 2009 and FY 2008 showed losses while the current FY is showing only $0.05/share profit with earnings for the last quarter to be released soon. Analysts expect $0.67/share, but AU has surprised to the upside the last 4 quarters.


Another horrible chart - all sign point downward. The stock is at the 200 day MA and the 50 day MA is taking a negative inflection. $44 also happens to be a Fibonacci support level! Below that, you have to go to $38 to find support. Wheeee!


The current P/E is negative (-19.42) but forward P/E is at 11.51. Net margins are at around 10% which is below industry average. Earning growth rate for FY2011 is at 89% but it not as significant as comparison are skewed by bad reference years. The next couple of weeks will be telling!

Eldorado Gold Corp (EGO)

EGO owns mining operations in Turkey and China. In addition, it has an iron ore project in Brazil. Market capitalization is at $9.38 billions. 

Another company with a good 2010 - up 30%. But like the other, going down opposite the market in 2011 (-7%). The stock has been even more volatile than the others in the last 12 months.


And the volatility can be seen in the performance relative to gold with the stock price running ahead in August and September before correcting big in October. It has stuck much closer to the price of gold lately, but if history is a lesson, this might not last.


The stock has been in some sort of a channel for the last 3 months or so, but making higher lows and lower highs, forming a triangle. Some technical indicators are rising again but the last couple of days have been tough. The stock has breached its 200 day MA again. But there is great support around $16.50.


With a P/E of 45 and a forward P/E of 24.81, the stock is not cheap in comparison to other miners. Its projected earning growth rates over the next 5 years is only 5%, making it difficult to justify these valuations. It is probably based on growth rates from the last couple of years which have averaged around 50%. This would support a P/E at the current level, but I would wait to hear more guidance and projections before jumping in.

Fundamentals comparison table




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