Less than two weeks ago we were given an exclusive interview with Tom Winmill of the Midas Fund (NASDAQ: MIDSX). Winmill told us he believes that gold will reach $1,700/ounce in 2011 and he also gave us some color on a few of the stocks in the Midas portfolio.
Now we’ll check in with our own list of five great gold stocks. Winmill’s list included miners Eldorado Gold Corp. (NYSE: EGO), Avocent Mining plc (OTC: AVVGF), and Northern Dynasty Minerals Ltd. (AMEX: NAK). He also mentioned Rio Tinto plc (NYSE: RIO) and the SPDR Gold Trust (NYSE: GLD). We’re going to add a couple of others: Newmont Mining Corp. (NYSE: NEM), Kinross Gold Corp. (NYSE: KGC), AngloGold Ashanti Ltd. (NYSE: AU), and Peruvian miner Compania de Minas Buenaventura SA (NYSE: BVN). We’ll also look at popular ETFs iShares Gold Trust (NYSE: IAU), Market Vectors Gold Miners ETF (NYSE: GDX), and Market Vectors Junior Gold Miners ETF (NYSE: GDXJ).
Northern Dynasty Minerals Ltd. (AMEX: NAK), as Winmill noted, is not yet earning revenues, but this is one of his long-term plays, with large-scale production not scheduled to begin until 2016 or later. For those of us who don’t even buy green bananas, we’ll take a pass on this one. Friday’s closing price of $12.57 compares to a 52-week trading range of $6.00 to $21.76 and compares to a Thomson Reuters consensus analyst median price target of $38.94.
Avocet Mining plc (OTC: AVVGF) boasts a trailing P/E ratio of 25.7, and according to Winmill, the company’s focus on West Africa is not correctly valued in the market. On its home exchange in London (AVM), Avocet posts a trailing P/E of 38.64 on a market cap of around $640 million. This could be a bargain, but again, it’s likely to take some time. In London, AVM closed Monday at $45.50 in a 52-week range of $38.66-$52.86.
Rio Tinto plc (NYSE: RIO) is the largest company, by market cap, in this list. It’s valued at about $136 billion. It’s trailing P/E is 9.33 and its forward P/E is just 7.46. It owns a piece of Northern Dynasty’s biggest project and mines just about any mineral that’s worth anything to someone. But the company’s $10 billion in cash at the end of 2010 and more than $56 billion in property, plant, and equipment make it a force to be reckoned with. It’s forward dividend yield is 1.8%, not much, but the highest of any of the miners we’re looking at here. Shares closed Friday at $69.59 in a 52-week range of $39.30-$76.67, and the median price target is $94.93.
Newmont Mining Corp. (NYSE: NEM) posts a trailing P/E ratio of 12.6 and a forward P/E of 12.37. Newmont just raised its quarterly dividend to $0.20/share, which yields 1.4%. Analysts expect growth here, with a median price target of $73/share, about 20% higher than Friday’s closing price of $56.39. Newmont’s got to watch its cash costs, though, which are among the industry’s highest. Shares closed Friday at $56.39, within a 52-week range of $50.05-$65.50, and the median price target is $73.00.
Kinross Gold Corp. (NYSE: KGC) posts a trailing P/E ratio of 18.02 and a forward P/E of 16.61. It’s dividend yield is a paltry 0.6%. Kinross shares trade at a discount to other large miners, but at least one analyst believes that 2011 could close that gap as the company closes in on projects in Ecuador. Shares closed at $16.11 on Friday, within a 52-week range of $13.84-$19.90, with a median price target of $22.50.
AngloGold Ashanti Ltd. (NYSE: AU) posts a trailing P/E of 104.12 and a forward P/E of 9.72. The huge difference could be due to a very profitable first quarter and the end of Anglogold’s forward sales. The company no longer has any hedges and will sell all its production at spot rates. That will keep shares higher this year, but the effect will diminish going forward. Shares closed on Friday at $45.50, within a 52-week range of $38.55-$52.86, with a median price target of $64.40.
Compania de Minas Buenaventura SA (NYSE: BVN), like Newmont, pays a nice forward dividend yield of 1.4%. Its trailing P/E is 15.53, and its forward P/E is 11.55. The company increased its silver production in the first quarter by about a third over a year ago and BVN more than tripled its copper production. Diverse assets, like Rio, only much smaller. BVN closed at $44.34 on Friday, within a 52-week range of $34.91-$57.50, and the median price target is $53.00.
The SPDR Gold Trust (NYSE: GLD) is the largest holding in John Paulson’s hedge fund, at 13.51% of the portfolio’s value. Because the trust holds only bullion, it avoids all the dangers involved with mining. Same for the iShares Gold Trust (NYSE: IAU). SPDR Gold Trust closed at $149.70 on Friday, within a 52-week range of $113.08-$153.61. iShares Gold Trust closed at $15.01 on Friday, within a 52-week range of $11.32-$15.39.
The Market Vectors Gold Miners ETF (NYSE: GDX) and the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) spread the risk around the various miners. Newmont is one of the three largest holdings in GDX, and along with Barrick Gold Corp. (NYSE: ABX) and Goldcorp Inc. (NYSE: GG), make up more than a third of GDX’s holdings. The Gold Miners ETF closed at $57.92 on Friday, within a 52-week range of $46.80-$64.62. The Junior Gold Miners ETF closed at $37.44 on Friday, within a 52-week range of $24.25-$44.86.
So, skipping the two long-term plays, the best performer over the past 12 months has been Rio Tinto (up about 50%), followed by SPDR Gold Shares (up about 25%. Buenaventura finished up about 23% and AngloGold is up nearly 10%. Newmont is up about 5%. These five look good going forward.
Paul Ausick
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