STOCK SCREEN: Intrinsic Value Check for Gold Mining Stocks and Gold Update Gold and silver prices are down 28% and 44% since Q4’12 peaks, respectively, as declining euro-breakup risks and anticipated QE tapering in H2’13 has undermined the demand for gold as an inflation hedge and alternative to fiat money. The sell-off in gold has been driven largely by liquidations in global gold ETFs, leading to the lowest net long position in 10 years, according to CFTC data. Gold stocks sold off as investors believe producers have been complacent, with mining and capex plans calibrated on much higher gold prices, meaning free cash flow generation could be perilously negative in certain cases for the next couple of years. Yet the sell off in gold and gold related stocks might offer some opportunities, if investors underappreciate the potential for self-help among gold producers or if 10-year inflation expectations are unrealisticly low and the unprecedented expansion of the US balance sheet since 2002 to >$16 trillion total public sector debt will lead to higher long-term inflation. In chart 1 below we looked at the correlation between 10y US breakeven inflation rates and the price of gold per ounce. We published an intrinsic stock value check of the largest gold mining companies, favoring quality companies where leverage is low, growth is imminent, and management has the flexibility to reduce costs and protect FCF. Here is the result of our intrinsic value screen including fair value upside estimates and leverage data. Each company name in the list is linked to our stock value analysis tool: valueexplorer/news/details/date/2013/07/21/stock-screen-intrinsic-value-update-for-gold-stocks.xml?no_cache=1
Posted on: Thu, 25 Jul 2013 10:36:16 +0000
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