Gold Miners Analysis - Part 3

Here is part 3 of the gold miners analysis. Tomorrow Part 4 and my conclusions.


IAMGOLD Corp (IAG)


IAMGOLD (catchy name!) is a Canada based company who operates mines in Canada, South America and Africa. In addition to gold, they also produce niobium and own a diamond royalty. It has a market capitalization of $6.49 billions.


IAG was up 13% in 2010, trailing most of the competition, but they are up 2% this year which is an exception in this industry. 

Based on last year's results, IAG is trailing gold badly in relative performance. But the stock was extremely volatile throughout the year, matching gold at some points and correcting violently like in May for example.

The technical picture is in contrast to many of the other miners. I rank it a 5. The 50 day MA and 200 day MA are very close to each other and as of today, the price is above both MA. Many of the indicators are still (barely positive). And there is decent support around $16.

With a P/E over 79, IAG is the most expensive of all the miners (the ones with positive results that is). But with a forward P/E of 13.61 and a projected earning growth above 100% for the next 5 years, this could be justified. The company just reaffirmed guidance regarding its production for this year.  There are 2 negatives as far as I can see - they have surprised on the negative side the last 2 quarters with big misses and their net margins is only 9%, trailing the industry average.

Ivanhoe Mines Ltd (IVN)

Ivanhoe Mines is a diverse mining operation - through various subsidiaries they mine gold and coal in Mongolia, various minerals (including gold, copper and uranium) in Australia and they also partners in mining projects in Kazakhstan. It has a market capitalization of $13.49 billion.

This is one company I have trouble understanding - they don't make any money, earning projections are negative and yet, they went up 55% in 2010 and they are already up close to 15% in 2011. By far, the best performance. This performance is most likely tied to expectation for their Mongolia operations. Operations there have been delayed by negotiations with the local government but their Oyu Tolgoi field is supposed to be the biggest untapped copper-gold source in the world.

With such numbers, IVN is ahead of gold in relative performance. A big run in September put them ahead for good. 

The technical picture is the best of them all - I rank it a 7. All signs point to higher prices. The stock was up 1.8% today (1/18/2011).

Most of the fundamentals numbers will not be very meaningful with IVN. Their current P/E is -28.82. Their forward P/E is -123.52. They are losing money left and right and there is no valid projections for earning growth. This is, as far as I can tell, a "leap of faith" investment, hoping that their operations in Mongolia (which they own with Rio Tinto) will pay out big. Investors are definitely betting that way!


Jaguar Mining Inc (JAG)


Jaguar operates gold mines in Brazil. This is the smallest company in this comparison with a market capitalization of only $549 millions.


Jaguar had a disastrous year in 2010, losing 38%. It is also down 4% for 2011. Clearly the black sheep of the industry. 

Clearly, with these numbers, Jaguar did not track gold at all throughout the last 12 months. In relative performance, it is now some 70% behind!

The technical picture is accordingly bad. I rank it a 2. The long term indicator (grey line in bottom graph) is in "super" down trend. The stock is below all the MA (15, 50 and 200) and seems to be locked in a channel between $6 and $7.50. Overall, not a promising picture!

The -11.64 P/E is of course not telling. But even the forward P/E of 17.62 is above average. There is no reliable earning growth projections and net profit margins are currently negative so difficult to render a good judgement at this moment. In addition, Jaguar has a bad history of earning surprises. On the other hand, as a small cap, there is the potential of the company being acquired. 


Kinross Gold Corp (KGC)


Kinross operates gold mines in the USA, Brazil, Chile, Ecuador and Russia. It also mines silver.  It has a market capitalization of $19.11 billions.


KGC was up only about 3% last year and is already down 11% this year. Clearly not the best of investment!

Obviously KGC is trailing gold badly for the last 12 months! And they also mine silver which is up more than gold over the same period.

The technical picture for KGC is pretty disastrous. All the indicators are negative, the price is under all the MA (15, 50 and 200). The price is below week support at $17. Next line of support is at $15. I rank it a 2. Not very encouraging.

The current P/E of 15 is below average for the industry, but the forward P/E of 20.74 is above average and doesn't bode well for future price appreciation. Projection for earnings growth for the next 5 years is only 10% but net profit margins are some of the highest in the industry. 

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