Do Gold & Precious Metals Miners Still Offer Good Value?

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Over the past few years, the historical prices of gold and other precious metals have given investors good reason to purchase metals stocks. Yet, with the stock market back up from its 2008 lows, will these shares still provide value to investors? In this article, I will show that Silver Wheaton (NYSE: SLW), the largest precious metals streamer in the world, is an excellent short and long-term stock for your portfolio.

With the Federal Reserve continuing its quantitative easing efforts through buying back $40 billion per month in mortgage backed securities, along with the continual printing of money, the U.S. dollar has become further devalued - giving investors reason to keep buying gold as a hedge against inflation - and giving Silver Wheaton's CEO Randy Smallwood reason to believe that gold and silver prices will keep moving higher.

Smallwood was recently quoted as stating that "[The company is] confident in precious metals as becoming a story of value. It's a hard asset that can't be printed, can't be reproduced [and] it's still pretty tough to find this stuff." He went on to state that his company is looking to better position itself in the gold space, and that he is bullish on precious metals in general over the long run.

Over the next five years, Silver Wheaton estimates that the revenue it generates from gold will increase from roughly 12% to approximately 25%. This equates to the company's gold streams adding approximately 110,000 ounces of gold production per year. Expanding out over a 20 year time frame, Silver Wheaton expects that this is equal to just under 6 million silver equivalent ounces, having a gold/silver ratio of 53:3:1.

In late 2012, the company announced that it had a record 7.7 million equivalent ounces produced in the third quarter of 2012, due in large part to the addition of its production from its Hudbay's 777 mine.

Recently, Silver Wheaton also made an announcement that it will be acquiring two gold streams from Vale S.A. One is Vale's Salobo Mine, located in Brazil, and the other includes certain Sadbury Mines that are located in Canada. Through this deal, Vale is to deliver 25% gold stream interest of the life of mine production with regard to the Salobo Mine. In addition, Vale will also deliver a 70% gold stream interest from the Sudbury Mines that are included in the deal. This interest will continue for a period of 20 years.

Silver Wheaton currently pays a dividend of $0.28 per share, giving it a yield of just under 1%. But with a P/E ratio at just under 23, and earnings per share of 1.57, while Silver Wheaton may not be pumping out loads of income to investors, the shares should still be considered on the growth side, particularly as its shares are estimated to rise nearly 30% over the next 12 months. 

How Other Metals Companies Are Faring

Another metals mining company, Alexco Resource (NYSEMKT: AXU), is also working towards reaching its cost efficiency and production targets. One of the biggest positives in this company's favor is the fact that it has operations in the area of the Yukon that is known as the "Silver Trail." Between 1950 and 1990, this particular geographic region was responsible for producing roughly 217 million ounces of silver - although it is expected that there is a great deal more that is available in the area of not just silver, but also zinc and lead that is ready to be mined in this location.

Alexco also now has its Bellekeno mine and mill operating - meaning that it is currently both running and producing silver. Later in 2013, the company plans to have two additional mines running. These include Lucky Queen and Onek. Although, in order to meet its goal of producing approximately 5 million ounces of silver in 2015, Alexco will need to step up its production a great deal, as the firm is presently only running a production of roughly 500,000 ounces per year. Trading well below its 52-week high, Alexco could be a great buy, especially at under $5 per share.

With the continued rise in metals values, Rio Tinto (NYSE: RIO) has provided a steady dividend and yield for investors at $1.45 per share and 2.5% respectively. Although the company's anticipated annual 2012 revenue of $52 billion is down from its fiscal year 2011 revenue of just over $60 billion - and earnings per share are also expected to be off from $8.09 in 2011 to (expected) $4.02 for 2012 - Rio's anticipated dividend per share is thought to be up by over 10% from FY 2011.

One other potential mining industry mover, Freeport-McMoRan (NYSE: FCX), could be considered for both income and growth. Although some in the industry feel that the firm is making a mistake in moving into the area of oil exploration, the shares continue to provide investors with a solid dividend yield in the 3.5% range. Freeport-McMoRan is known for operating large and geographically diverse assets - and especially those that possess both probable and proven reserves of gold, copper, and even molybdenum. Freeport also has a solid P/E ratio of 11.08 and a very respectable earnings per share of 3.19.

Another firm considered to be a high-yielder in the mining arena is Cliffs Natural Resources (NYSE: CLF). With the opportunity to invest in an iron-ore producer that offers a nice dividend yield of nearly 7%, investors may want to take a second look here - especially in light of the company's 6.33 earnings per share.

The Bottom Line

Given its positive production results, along with the continued high value of gold and other metals, I feel that Silver Wheaton shares could provide a great value to investors in the area of growth over both the short- and long-term time horizons. The addition of more mines seem to have been positive moves for the company - adding to its overall production and profitability that is estimated to continue over the next two decades.


StockCroc1 has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. 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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