The sell-off in gold must still be fresh in investors minds as it had a significant bearing on the stock market, as well. The price of the precious metal was down close to 8% in April. The Cyprus-inflicted panic substantially shaved the valuations in gold mining firms, such as Allied Nevada Gold Corp. (NYSEAMEX:ANV), Royal Gold, Inc (NASDAQ:RGLD), and Newmont Mining Corp (NYSE:NEM), which begs the question — is this is the right time to start buying shares in a depressed market? Here’s a closer look at each company.
Allied Nevada Gold Corp. (NYSEAMEX:ANV) is a producer of gold and silver and as prices of both precious metals have crashed, the stock has been at the receiving end of the market, losing consistent market value since November. The sell-off has caused a value erosion of over 65% so far this year. There is still no telling if this is the bottom, but the stock certainly looks attractive at a forward price-to-earnings ratio of 4.2.
It’s worth noting that this valuation is based on financial models which have already factored in the expected weakness in gold prices. As such, any surprises in terms of a further drop in gold prices are expected to be limited. This effectively means that unless the company flounders big time on operational issues, its profits are likely to be flat.
Since Allied Nevada Gold Corp. (NYSEAMEX:ANV) is in expansion mode, it’s not surprising to see the effect of lower-gold prices being offset by higher production to a large extent. This is what happened in the quarter ended Dec. 31, 2012 when revenue doubled.
Royalty interest is the way forward
Royal Gold, Inc (NASDAQ:RGLD) is down 18% in recent sessions, and has shed 34.6% since January. The company is not a mining firm and largely operates through acquiring royalty interests in existing projects.
As of Dec. 31, 2012, the company had interests in 39 producing properties, 28 development-stage properties and 138 exploration-stage properties, and had nearly 60% percent of its revenue coming from the North American markets.
It’s not that falling gold prices does not affect the company, but a non-mining business model at least keeps variable costs out of the equation. This was probably the reason why it was given a ‘Buy’ rating last month by BB&T Corporation (NYSE:BBT) Capital Markets with a target price of $85, reflecting huge upside considering its recent price of $51.60. In addition, a less-leveraged balance sheet is a net-positive to take the stock higher when gold prices recover.
Newmont Mining: A dividend giant at a discount
Colorado-based gold producer Newmont Mining Corp (NYSE:NEM) offers an exceptional dividend yield of about 5.3% at a recent market price of $32.60. The stock has lost 15% in the last several days days, and shed 27% so far in the year.
Needless to say, current levels are the lowest in the last 52-weeks. The downside for this stock may be limited by the fact that shares are trading at a premium of just 17% to the net value of the company’s assets.
A price-to-earnings ratio of 8.6 is attractive, but more than this, operational updates from the company would likely drive the stock in the future. Newmont Mining Corp (NYSE:NEM) has a 44% interest in a La Herradura, Mexico joint venture, which is building an oxide mill to improve recoveries on higher-grade material. This is expected to be completed in the second half of 2013.
Foolish bottom line
Overall, it is difficult to say if we are out of the woods yet, and we are probably not, but precious-metal prices have moved into oversold territory and can surprise on the upside. The negative sentiment for gold is not exactly as strong as it appears. If slowing economic growth across the world follows Europe, we may see a revival in gold prices, which has worked as an excellent hedge in recent decades.
The article Is Value Emerging in These Gold Miners? originally appeared on Fool.com.
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