There are a variety of ways to invest in precious metals. Buying gold or silver bars and coins is one. Exchange traded funds (ETFs) are another. A third way is by investing in mining stocks. The past year has not been kind to either the price of gold nor to the miners. The steep losses in the mining sector stocks have become so sharp that value investors have to at least take a look at this down-and-out mining sector.

24/7 Wall St. has taken a look at the actual metals and other methods of investing in or around this theme. It leaves room for gold and silver miners, exchange traded funds and products, and even directly holding the metals.

Commodities

Direct investment in commodities metals is not for the faint of heart. Gold, for example, has dropped more than $200 an ounce since the beginning of the year, a loss of about 13%. Silver has fared even worse, dropping around $8 an ounce, for a loss of around 26%. Platinum is down about 10% and palladium, bucking the trend, is up around 6%.

Gold bar and coin demand rose 10% in the first quarter of the year, while ETFs experienced a drop of more than 7% in the quarter. Some analysts attribute that switch to a loss of faith by investors in paper money and in the banks and financial institutions that back all that paper. Gold demand from central banks also fell by 5% in the quarter

Lower gold (and silver) prices in the first quarter also drove demand from jewelry buyers, which rose by 12%. Because this demand was driven by price, when the price begins to rise again, we can expect this demand to fall.

Exchange Traded Funds

The SPDR Gold Trust (NYSEMKT: GLD) and the iShares Silver Trust (NYSEMKT: SLV) are perhaps the best-known of the precious metal funds. In the past 12 months, shares of the former have dropped more than 11% and shares of the latter have lost nearly 7%. Neither of these can ever really be considered a value play, but that is not why people invest in precious metals ETFs in the first place.

Mining ETFs include Market Vectors Gold Minters ETF (NYSEMKT: GDX), Market Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ) and Global X Silver Miners ETF (NYSEMKT: SIL). Over the past 12 months, shares are down from about 26% at SIL to more than 42% at the junior miners ETF. Whether now is the time to “buy the dip” in these funds is left as an exercise for the reader. To help with that exercise, we have looked at a number of precious and base metals mining stocks with an eye toward spotting a hidden value or two.

Precious Metals Mining Companies

The issues facing the world’s mining companies are well known: rising costs, labor troubles and diminishing ore quality get most of the blame for the mining industry’s poor showing in 2012. Add to that a several-years effort by mining executives to add to reserves by paying top prices for new resources. That buying spree cost several top CEOs their jobs. Now the mining industry has turned almost 180 degrees and is focusing on creating value for shareholders with a tighter grip on capital spending and better returns on investment. Call it the financialization of mining.

Barrick Gold Corp. (NYSE: ABX) recently traded at $19.16 after news of Chilean mining woes took some steam out of this miner. In early February, shares closed at around $32.75, marking a drop of about 41%. Barrick now has a market value of about $19.2 billion. The consensus target price from Thomson Reuters is $32.30, and the 52-week range is $17.51 to $43.30. Barrick has a dividend yield of 4.3%, up from 2.4% in February. The upside implied by the consensus target is nearly 69%.

Goldcorp Inc. (NYSE: GG) recently traded at $26.83, versus $36.20 back in February, meaning the shares have fallen more than 25%. Goldcorp has a current market value of about $21.8 billion. The consensus target price is $39.30, and the 52-week range is $25.54 to $47.42. Goldcorp has a dividend yield of 2.3%, compared with 1.7% in February. The upside implied by the consensus target is about 46%.

Kinross Gold Corp. (NYSE: KGC) recently traded at $5.80, versus $8.30 in February, for a drop of about 30%. Kinross has a current market value of about $6.6 billion. The consensus target price is $8.50, and the 52-week range is $4.97 to $11.20. Kinross has boosted its dividend yield to 3% from 1.9%. The upside implied by the consensus price target is about 47%.

Newmont Mining Corp. (NYSE: NEM) recently traded at $32, versus $45 in February, making the loss almost one-third. Newmont has a market value of about $15.9 billion. The consensus target price is $42.45, and the 52-week range is $30.30 to $57.93. Newmont has a dividend yield of 4.6%, although the company did tie its dividend payouts to the price of gold in the past. The upside implied by the consensus target is about 33%.

Yamana Gold Inc. (NYSE: AUY) recently traded at $10.82. In February the share price was around $16.75, a drop of about 35%. Yamana has a market value of about $8.1 billion. The consensus target price from Thomson Reuters is $17.40 and the 52-week range is $10.34 to $20.59. Yamana has a dividend yield of 2.5%. The implied upside to the consensus target is about 61%.

Freeport McMoRan Copper & Gold Inc. (NYSE: FCX) recently traded at $30.40, “only” about 15% lower than the $35.70 February price. The company has a market value of about $28.9 billion, and the consensus target price is around $37.30. The 52-week range is $27.24 to $43.65. Freeport has a dividend yield of 3.8%. The upside implied by the consensus target is 23%. The company has completed its acquisition of McMoRan Exploration and Production and expects to complete its acquisition of Plains Exploration & Production by the end of this month.

Silver Wheaton Corp. (NYSE: SLW) recently traded at $22.50, almost 40% lower than $37 back in February. Its market value is about $8.1 billion. The consensus target price is $40.80, and the 52-week range is $21.45 to $41.30. Silver Wheaton has a dividend yield of 2.2%. The upside implied by the consensus target is 79%.

Pan American Silver Corp. (NASDAQ: PAAS) recently traded under $12, rather than around $18.40 as in February, for another loss of about one-third of its value. It has a market value of about $1.9 billion. The consensus price target is around $17.60, and the 52-week range is $11.51 to $22.83. The company’s dividend yield is 4.3%. The upside implied by the consensus price target is 44%.

Coeur Mining Inc. (NYSE: CDE) recently traded at $13.50, down about 40% from the $23.00 seen in February. Coeur has a market value of about $1.4 billion. The consensus target price from Thomson Reuters is $23.10 and the 52-week range is $12.92 to $31.97. Coeur does not pay a dividend. The upside implied by the consensus target is 71%. The company was known as Coeur d’Alene Mines until mid-May, when it reincorporated in Delaware and change its name.

Stillwater Mining Corp. (NYSE: SWC) recently traded at $12.05, down about 16% from an early February price around $14.40. Stillwater has a market value of about $1.42 billion. The consensus target price is $16.50, and the 52-week range is $7.47 to $14.87. Stillwater does not pay a dividend. The upside implied by the consensus target is 37%.

Base Metals Mining Stocks

We have already looked at Freeport-McMoRan in the section on precious metals. Freeport’s production, however, is primarily copper. The company sold about 3.65 billion pounds of copper in 2012 and 1.01 million ounces of gold. At an average 2012 LME price of $3.60 a pound for copper and a London price of $1,669 an ounce for gold, the value of the copper topped $13 billion and the gold was worth about $1.7 billion.

BHP Billiton PLC (NYSE: BHP) recently closed at $66.73, down from an early February price of about $77.90, a drop of 14%. BHP has a market value of $177.5 billion. The consensus price target is around $62.90. The company has a dividend yield of 3.4%. The current price is about 6% above the consensus target, indicating that BHP is fully valued.

Rio Tinto PLC (NYSE: RIO) recently traded at $43.54, down from an early February price of $57.58, a decline of about 24%. Its market value is about $80.4 billion. The consensus price target is around $72.00, and the stock’s 52-week is $41.59 to $60.45. The company pays a dividend yield of 4.2%. The upside implied by the consensus price target is 66%.

Vale S.A. (NYSE: VALE) is trading around $15.20, versus $19.85 in early February. Vale’s market value is $79.7 billion and the consensus price target is around $22.25. Its 52-week range is $15.37 to $21.88, and Vale’s dividend yield is about 4.8%. The upside implied by the consensus price target is nearly 44%.

Copper closed at about $3.30 a pound on Friday, down 8% from last year’s average LME price for the red metal. Iron ore is down about $13 a ton in the past 12 months, and aluminum is down about 12%. Whether prices recover depends to a large extent on demand from China — and we all know how that has gone in the past couple of months.

Some Observations

In precious metals, the only winner this year has been palladium, which is a cheaper alternative to platinum in the manufacturing of automobile catalytic converters. For investors who cannot resist, there are three ETFs that offer a play on palladium: the ETFS Physical Precious Metal Basket Shares (NYSEMKT: GLTR), the PowerShares DB Precious Metals Fund (NYSEMKT: DBP) and the ETFS Physical Palladium Shares (NYSEMKT: PALL).

Whether or not gold and silver prices recover, the gold and silver miners are facing another difficult year. One thing to watch for is an increase in hedging. During the run-up in gold prices, hedging virtually disappeared. Hedging silver has picked up again, and some smaller gold miners have also started hedging production again. If (when?) Barrick or Newmont open hedging books on gold production again, a prudent investor may conclude that the miners see prices continuing to slide.

There is room for a contrarian to at least start thinking about mining stocks at this point. It is amazing to think that big precious metals mining stocks are trading at levels roughly equal to where we saw them during the depths of the recession. It is as if gold prices went back to $800, even though they have not.

Investors who conclude that the stocks have reached a bottom and who are willing to wait for two or three years may believe that now is a good time to begin accumulating shares. The biggest consideration at this point in comparing now to 2009 is that many miners have committed to mining projects that pull gold and silver out at a far higher price than just a few years ago.

Of the precious metals players, only Silver Wheaton remains somewhat insulated from rising costs. It may take the stock a while to turn around, but this one should recover ahead of the miners. Shares are still trading more than 60% higher than at the bottom of the recession in 2009.

There is no free lunch in precious metals investing. Silver is referred to by some traders as “The Devil’s Metal” for a reason, and buying individual miners comes with geopolitical, labor strike, environmental shut-down and mine cessation risks.

We have included an image from Yahoo! Finance that should represent just how bad the carnage has been in the miners, versus the price of gold in the past five years. Needless to say, this has been very ugly and painful.

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