Barron's: Newmont, Goldcorp Could Rise 40%

Monday, 22 Apr 2013 03:28 PM

By Dan Weil

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Major gold-mining stocks stand at or near multi-year lows after tumbling more than the precious metal itself over the last two years.

And that’s making them look like real values, writes Andrew Bary of Barron’s, particularly Goldcorp, Barrick Gold and Newmont Mining.

“Downside in these stocks seems limited, barring a further collapse in gold prices. They could rise 40 percent if gold rallies back toward $1,700, where it started 2013,” Bary says. Spot gold traded at $1,426 an ounce Monday afternoon.

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"In my career, I've rarely seen a group less well-liked than the gold miners," David Steinberg of DLS Capital in Chicago tells Barron’s.

He points out that the Philadelphia Stock Exchange Gold & Silver Sector index now trades at the same level as in the late 1980s. "Relative to history, these stocks are extraordinarily undervalued, but I don't know when sentiment will turn," he explains.

Goldcorp is probably the safest of the three stocks, Bary suggests, because “it has the lowest mining costs, the strongest balance sheet, the best growth outlook and the largest market value at $22 billion.”

In contrast, Barrick is probably the riskiest, “because it has the most debt, at $14 billion, isn't generating any free cash flow after heavy capital expenditures and faces a big challenge with an enormous mine it is developing in a remote location at an elevation of 15,000 feet on the Chile-Argentina border,” Bary notes, adding that Chile has ordered the company to stop work on the part of the mine in Chile because of environmental issues.

“The monetary backdrop for gold looks favorable, as major governments around the world suppress interest rates and crank up the monetary printing presses,” Bary concludes.

“Most investors have little or no allocation to gold and mining stocks. This could be a good time to get in,” he adds. “The metal and the depressed stocks offer a hedge against all the ills that can flow from monetary and fiscal profligacy around the world.”

Meanwhile, gold prices are in the midst of a five-day rally after reaching a two-year low last Monday.

“Strong demand for physical gold is a major factor working to lift gold prices up from last week’s lows and beginning to suggest a market bottom is in place,” Jim Wyckoff, a senior analyst at Kitco, a precious-metal refiner and research company, writes in a report obtained by Bloomberg.

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