Commodities & Metals

5 Gold Stocks Still Trading Under Book Value

Jon C. Ogg

Published: June 20, 2016 12:10 pm

Last Updated: January 13, 2020 6:36 am

Maybe you have heard the phrase “There’s gold in them thar hills.” It turns out that 2016 has seen a massive rally in gold, and this has been a leveraged move in the world’s gold miners rising to the upside. The reasons for this surge are numerous. Still, let’s just say that this was the exact opposite move of what the consensus pack was expecting at the end 2015, when the risk was there that gold could even go well under $1,000 per ounce again.

24/7 Wall St. wanted to see if there was still any value among the top gold-mining stocks. It turns out that there may still be considerable value, but this is an instance where beauty is in the eye of the beholder. We screened out the small cap stocks, those with a market capitalization under $1 billion, to avoid the most speculative names. Then our main focus went to book value, and five of the top gold-mining and production stocks were still valued at less than 1.0 times book value.

In an effort to screen out some of the royalty companies and other non-core companies, we went ahead and screened for the price-to-sales ratios to make sure that investors were really evaluating gold companies with hard assets rather than fixed financial claims tied to gold.

Before blindly thinking that these are cheap no matter what, it is important to understand that many gold-mining and production stocks have more than doubled year to date. Of these five under book value, the lowest year to date gain is 40% and the highest is 274%.

Investors also need to understand one very important thing about book value. It can make a company look cheap, but it also can be mispriced to the current market. In the case of gold-mining outfits, many of them are basing the value of their estimated reserves and metals in the ground at various gold prices. Every company also has a very different cost of mining, another reason we included a price-to-sales ratio.

The long and short of the matter is that if these companies were theoretically to come up for sale they might not fetch the full book value or might not fetch any premium at all. As you will see, some of these gold stocks have rallied to the point that they are now well above their consensus analyst price targets.

Due to so many factors outside of a company’s control, we did not include current or future price-to-earnings (P/E) ratios. There are just too many factors to consider, from geopolitics to employee strife and even floods or accidents. Still, these companies are mostly expected to be profitable, but be advised they might not look cheap on a raw earnings valuation basis.

Some companies are involved in selling or acquiring gold and other mineral projects. That can greatly change their book values. It can also mean that some of these descriptions or underlying book values might be partly off base. With most gold companies being international (none of these five are based in the United States), there can also be wild swings in valuation due to currencies and other considerations.

Yamana Gold

The market cap of Yamana Gold Inc. (NYSE: AUY) was last seen at $4.67 billion, despite such a low share price. Yamana is valued at 2.60 times sales and 0.94 times book value. It has seen its shares rise 160% year to date. And it had an operating earnings-per-share loss of $0.08 in 2015, but the increase in revenues is expected to generate profits of $0.11 per share in 2016 and $0.13 in 2017.

Yamana Gold is based in Toronto, Canada. Its precious metal properties are located in Brazil, Argentina, Chile, Mexico and Canada.

Shares of Yamana Gold were last seen trading at $4.78, and the consensus analyst price target of $4.60 is less than the current share price. The stock has a 52-week trading range of $1.38 to $5.38.
Harmony Gold

Harmony Gold Mining Co. Ltd. (NYSE: HMY) has a $1.52 billion market capitalization. It is listed at 1.46 times sales and is valued at 0.86 times book value. Its shares have risen 274% so far in 2016. The stock is very thinly covered by U.S. research analysts. The two estimates tracked for 2017 and 2017 both forecast profits.

This is the only one of the five sub-book value miners that is based in South Africa. It is mainly into gold exploration and mining in South Africa and Papua New Guinea.

Harmony Gold shares were trading at $3.42, with a consensus price target of $3.62 and a 52-week range of $0.53 to $4.19.

Eldorado Gold

The market cap of Eldorado Gold Corp. (NYSE: EGO) is$2.98 billion and it is valued at 3.78 times sales. It also is valued at 0.79 times book value. Eldorado Gold has seen its shares rise 40% so far this year. It posted only a two-cent operating earnings per share (EPS) for 2015, and that is expected to rise to $0.03 per share in 2016 and $0.11 in 2017.

Eldorado Gold is based in Vancouver, Canada. Its projects are in properties in Turkey, China, Greece, Brazil and Romania.

Eldorado Gold was trading at $4.15, and its consensus price target is $5.27. It has a 52-week range of $1.87 to $5.16.

IAMGOLD

IAMGOLD Corp. (NYSE: IAG) has a $1.59 billion market cap. It is valued at 1.78 times sales and has the cheapest valuation at 0.77 times book value. The stock has so far risen a sharp 171% in 2016. This company is not expected to be profitable in 2016, even if the loss is expected to be narrower in 2016 than 2015 and narrower in 2017 than in 2016.

As with others, the company is based in Canada: Toronto in this case. Its projects are in Suriname, South America; Burkina Faso, West Africa; Québec, Canada; Gogama, Ontario; and it has interests in eastern Senegal and Brazil.

IAMGOLD has a consensus analyst target that is below the current share price of $3.85 — down at $3.13. It also has a 52-week range of $1.15 to $4.14.

New Gold

The market capitalization rate of New Gold Inc. (NYSEMKT: NGD) is $2.06 billion. And it is valued at 2.95 times sales and at 0.98 times its book value. New Gold has seen its shares rise 77% so far in 2016. The company posted a $0.02 per share result in operating earnings in 2015, but it is expected to make $0.02 in 2016 EPS and $0.08 in 2017.

This company is based in Vancouver, Canada, and has projects in the following: British Columbia, Canada; Imperial County, California; New South Wales, Australia; San Luis Potosí, Mexico; and Ontario, Canada.

Shares were last seen trading at $4.10, within a 52-week range of $1.76 to $4.85. The consensus price target is $4.80.