Gold Miners Analysis - Part 2

Here is the second part of the gold miner analysis.


Gold Fields ADR (GFI)


Gold Field is a South African company operating mining operations in South Africa, Ghana, Australia and Peru. It also produces copper in Peru. It has a market capitalization of $11.92 billions.


GFI had a great year in 2010 moving up over 38% (gold was up 29%), but down close to 9% for 2011. 

GFI has been tracking the price of gold pretty closely in the last 12 months and like many other miners had ran ahead of gold in the last 2 months only to correct back to a more natural valuation in 2011.

The technical picture is not as bad as some of the other miners (I rank it a 4). But it is still not a pretty picture. The stock recently breached its 50 day MA but the 200 day MA is 10% away at around $14.80. The stock has not retraced as much as many of the other miners. 

With a P/E of 30.31, GFI is not cheap currently. But with a forward P/E of 10.69, a PEG ratio of 0.61 and projected earning growth of 28%/year over the next 5 years, there might be enough support for the current price and room to grow. However, net margins are some of the lowest in the industry and the dividend payout ratio at 25% is also one of the highest (the dividend is at 0.95%). 


Goldcorp Inc (GG)


Goldcorp is one of the largest miners with operations in Canada, USA, Mexico, Central and South America. In addition to gold, they also produce silver and copper in many locations so not necessarily a pure gold play.


Compared to the other miners, GG had a very subdued 2010, going up only 17%.  And the stock is down 11% for 2011. In effect, it had none of the 2010 run, but a full 2011 correction. Not the best of combination! And GG also produces silver which had a better run than gold...

GG was tracking the price of gold in the first 6 months of 2010, but the last 6 months have shown and large divergence (more than 15%).

Technically speaking, GG is hurting (I rank it a 2). The price has breached every support point and the next (weak) support level is at $40. The next "good" support point is at $38. All the indicators are pointing south with no sign of recovery. The last 2 trading days have actually been quite brutal!

With a P/E of 22.55, GG is cheaper that the average gold miner (small consolation) but its forward P/E of 20.71 outlines what the main problem is for GG - slower growth. It is projected to grow earnings only 5%/year for the next 5 years. On the other hand, it has the highest net profit margins in the industry. But the stock is extremely volatile and might see further weakening.


Gammon Gold Incorporated (GRS)


Gammon Gold operates silver and gold mines in Mexico. It has a market capitalization of 1.12 billions therefore, one of the smaller miners in this analysis.


2010 was not a stellar year for Gammon as the stock went down 25% (yes, down). At one point, it was down close to 50%. Some labor issues at one mine seemed to have a big impact in the second quarter and the company actually reported a $1.30/share loss. It has gone down another 5% this year.

Not surprisingly, GRS has not tracked the price of gold during the last 12 months! 

Technically speaking, the stock seems to be recovering somewhat. The price is over the 50 day MA and the 200 MA at this moment. I rank it a 7, the highest ranking of all the stocks in the analysis. The stock seems to be stuck in a narrow margin between $7.50 and $8.50 for the last 3 months!

It is obviously hard to price a stock with a negative P/E (-6.91) but the forward P/E is a very reasonable 11.49. Net profit margins stand at -66.88%, but once again, not a reliable number this year. The biggest concern is that earnings growth over the next 5 years is projected to be only around 5%/year. But they have recently reported better results at 2 of their mines and 2010 problems seem to be behind them. We'll see!


Harmony Gold Mining ADR (HMY)


Harmony Gold produces gold mainly from South African operations. They have a market capitalization of 4.86 billions.


Harmony had a decent 2010 with a 23% run. However, it has given back half of that gain with a 11% downturn in 2011. As with many of these stocks, HMY is extremely volatile!

HMY has lagged behind the price of gold for the last 12 months and opened some significant performance gaps as late as the last month.

No surprise, the charts are not pretty. The price is below the 50 day MA and the 200 day MA is only about 2 or 3% away! But both MA are (barely) positive. On the other hand, due to the great volatility of the stock, there is not great level of support. I rank it a 3.

Needless to say, the current P/E of -222 is not representative of the stock price (merely the 2011 trend!). But the forward P/E of 8.96 is the best of all the miners in this analysis. Net profit margins stand at -0.13% which is also an aberrational number as far as I can tell. On the other hand, projected earnings growth for the next years stands at an excellent 28%. HMY has a recent history of bad earning surprises (it is also followed by few analysts) so it would be prudent to wait for the next earning cycle and get more guidance.


Fundamentals comparison table

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