3 Undervalued Gold Miners To Buy On Dips

This significant increase should translate to a re-rating for the stock, with most intermediate and senior gold producers trading at closer to 10x earnings. However, SSR Mining has not received any re-rating, even though its margins have improved considerably with the addition of low-cost Copler operations in Turkey.

Chart, bar chart Description automatically generated

(Source: Author’s Chart)

While some investors might not be crazy about the Turkish exposure, it’s worth noting that Alacer Gold operated in Turkey for nearly a decade with no issues. Plus, the Copler Mine is partially owned by a Turkish operator, so there’s no reason for anxiety around the jurisdiction. However, due to perceptions about jurisdictional risk and poor sentiment in the sector, the stock has slid to below $17.00 per share, despite FY2021 annual EPS estimates above $2.30. This translates to a very reasonable multiple of just 7.3x FY2021 annual EPS estimates, and the company also sports a 1.0% dividend yield at current levels. While this discounted valuation doesn’t mean the stock can’t go lower, I see the sub $17.00 level as a low-risk area to start a small position in this mid-cap miner.

Chart, line chart Description automatically generated

(Source: YCharts.com, Author’s Chart)

Moving over to the second name on the list, Newmont, we’re also seeing a deep discount relative to prior valuations. Just yesterday, the company announced its updated reserves with more than 94 million ounces of gold in the ground and over 600 million ounces of silver, making it the miner with the largest mineral endowment globally. For investors looking for gold exposure, Newmont offers 117 ounces of gold per 1,000 shares held, which translates to a valuation of over $210,000 vs. the cost of $60,000 to put 1,000 shares. Plus, the stock pays an industry-leading 2.75% yield, which is high even compared with both the S&P-500 and other cyclical industries.

Chart, histogram Description automatically generated

(Source: Author’s Chart)

A picture containing text, yellow Description automatically generated

(Source: Author’s Chart, Company Filings)

Despite a strong report and projections for 70% growth in annual EPS in FY2021, Newmont is trading at barely 13.5x earnings, at a share price of $59.00 with FY2021 annual EPS estimates of $4.40. This is an insane valuation for a stock that typically trades at closer to 18x – 20x earnings, given that it’s the industry-leader with 6 million ounces of annual gold production and the fact that it has a mine life looking out to the 2040s conservatively. Similar to SSR Mining, a poor sentiment in the sector may drag the stock lower, but I have been buying in my long-term accounts to diversify my long-term holdings in broader market equities. At $57.50 per share, where I have been adding, the stock meets my criteria of below 13x earnings and a 2.75% plus yield, and I plan to continue to add on dips. Ultimately, I believe $4.40 in annual EPS is conservative if we can see some momentum return to the gold price later this year.

View single page >> |

Disclosure: I am long NEM, BTG, GLD

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.