A rebound in gold prices doesn't necessarily mean it's time to start buying up gold stocks.
2013 was a horrible year for gold. As the markets rose by double digits, gold fell by an equal amount. But this year began with a rebound in gold stocks, which in turn has boosted the share price of gold mining stocks. A number of factors – including rising development and acquisition costs – had already strained balance sheets across the sector.
Still, it might be time to look at gold miners again.
Gold at $1200
Gold prices are at levels far below the $1600 range seen in 2013. Any rebound in gold prices this year would boost gold miners directly:
However investors should not count on rising gold prices alone to justify a position. It is notoriously difficult to forecast future prices. It is also difficult for investors to know when the government will end or reduce quantitative easing at significant levels. Until there is clear inflation, gold prices will likely continue to fluctuate.
Investors should consider mining companies that are taking a better effort in improving their balance sheets. Miners trail gold prices, because they face ongoing operational costs. Barrick Gold (ABX) is one company whose balance sheet looks severely stained from excessive exploration and acquisition costs:
Click on the interactive charts to view data over time.
A heavy debt burden also strains Barrick's forward P/E, which is the lowest among some of the biggest gold miners:
And the rest…
Goldcorp (GG) may have a high price of profit, but it is also on one of the best runs in its industry. Goldcorp met its 2013 gold production forecast in Q4. For the quarter, it produced 767.7K oz. of gold. And for fiscal 2014, gold production is forecast to grow by up to 18%. Meanwhile production costs are expected to fall.
Newmont Mining (NEM) could improve results by adding to low-cost operations this year. Investors should monitor for better free cash flow as 2014 progresses. In a similar vein, Kinross Gold (KGC) may report smaller write-downs in light of the low gold prices. Its reserves already assume a price of $1200 per oz.
So do you see investing opportunities in these gold mining stocks? Use the list below to begin your analysis.
1. Barrick Gold Corporation (ABX, Earnings, Analysts, Financials): Engages in the production and sale of gold, as well as related activities, such as exploration and mine development. Market cap at $17.87B, most recent closing price at $18.17.
2. Goldcorp Inc. (GG, Earnings, Analysts, Financials): Engages in the acquisition, exploration, development, and operation of precious metal properties in Canada, the United States, Mexico, and Central and South America. Market cap at $18.12B, most recent closing price at $23.05.
3. Newmont Mining Corp. (NEM, Earnings, Analysts, Financials): Engages in the acquisition, exploration, and production of gold and copper properties. Market cap at $11.68B, most recent closing price at $23.88.
(Written by Chris Lau. All data sourced from Zacks Investment Research.)
Analyze These Ideas: Getting Started
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Dig Deeper: Access Company Snapshots, Charts, Filings
- Barrick Gold Corporation(ABX, Chart, Download SEC Filings)
- Goldcorp Inc.(GG, Chart, Download SEC Filings)
- Newmont Mining Corp.(NEM, Chart, Download SEC Filings)
- Kinross Gold Corporation(KGC, Chart, Download SEC Filings)
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