Metals Taking a Hit: Time to Buy Mining Companies?

Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Both gold and silver have been trending downwards over the last month. When these precious metals start their downtrend, their respective mining companies tend to follow along. Even though these mining companies are down; I think there is value to be extracted from these stocks throughout 2013.

Goldcorp

Goldcorp (NYSE: GG) hasn’t had a good year thus far; shares in this Vancouver based miner have dropped over 20%, but there has to eventually be an end in sight.

Goldcorp has operating mines in Canada, the United States, Mexico, and South America. In addition to these operating mines, Goldcorp also has several development projects that could take off next year.

The following graph plots the sales growth that Goldcorp has seen in the last decade. As you can see, it’s done quite well. The company’s net income and assets have also grown at a similar trajectory. 

<img src="/media/images/user_13385/chart1_large.png" />

Goldcorp is currently trading at a P/E of 18.8 and a forward P/E of 12 (Dec 31, 2013, Yahoo! Finance). The company has a PEG ratio of 0.96 that signals a little bit of undervaluation in some circles. Price to book sits at a nice 1.3 which presents a great entry point for one of the region’s biggest miners.

Silver Wheaton

Silver Wheaton (NYSE: SLW) is a worldwide silver streaming company. The company purchases silver production from miners and then distributes it to the market. With their contracts to purchase large amounts of silver at rock bottom prices I believe this company is a great investment for anyone interested in silver.

I think the best part of learning about Silver Wheaton is finding out just how much they pay for an ounce of silver. At one of the largest silver deposits in the world, Penasquito, Silver Wheton collected some 5.284 million ounces throughout 2011 paying an average price per ounce of pure silver for $3.93 in cash.

Here’s a look at Silver Wheaton’s sales growth since 2004. If that trajectory doesn’t get you excited about this company I don’t know what will.

<img src="/media/images/user_13385/chart2_large.png" />

Silver Wheaton has a current P/E of 22 and a forward P/E of 15.4 (Dec 31, 2013 Yahoo! Finance). Yes, the P/E is a bit high but the PEG at this company is 0.92 and return on equity is solid at 20%. If you want to get really excited about Silver Wheaton though, just take a look at their operating margin! It’s a staggering 73.84%.

Barrick Gold

Last, but certainly not least, I bring you the world’s largest gold mining company, Barrick Gold (NYSE: ABX). Like Goldcorp, this company finds its headquarters in Canada. They do come with business units around the globe though. Countries such as Australia, Peru, Russia, South Africa, Pakistan, and the United States all are home to a mine run by Barrick Gold.

Let’s take a look at Barrick Gold’s sales growth rate in a chart. I promise, it’s as good as the previous two. Before you look, I did this chart in billions; Barrick Gold does not deal in mere millions. 

<img src="/media/images/user_13385/chart3_large.png" />

So, what’s going on with the numbers at this place? They have a very low P/E ratio for the industry at a 10. The forward P/E is even lower at 6.7 (Dec 31, 2013, Yahoo! Finance). Problem here is, growth hasn’t been good and that has resulted in a 50.59 PEG ratio. The chart above only shows fiscal years, if this year was added on it wouldn’t bode too well.

Barrick Gold is still worth a definite look if you feel that gold prices will rebound next year. The company is quite cheap and I’m going to give it a serious look myself


Ash1402 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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