3 Gold Stocks You Just Can't Ignore

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Randgold Resources

On the Feb. 4, Randgold Resources (NASDAQ: GOLD) announced its earnings for 4Q12. As earnings per share were up $0.50, the company announced a 25% increase in its dividend. Total cash stood at $50 million less than the previous year amid a $560 million investment in capital development.

Randgold’s flagship operation, Loulo-Gounkoto, reached the 0.5 million production level. In the case of underground mines, Yalea’s development rates have also shown a lot of promise lately; the mine has now started to produce over 100,000 ounces of gold.

Northern Mali Conflict

Randgold’s 60% gold comes from its mines in Mali as it has production sites in Luolo and Morila. Therefore, the recent war going on in Mali, if not stopped at the right time, can cause significant damage to Randgold’s productions in the long run. Currently, the war isn’t hampering its business a great deal, thanks to the geographical location of the Morila and Luolo mines, which are situated far away from the fighting zone. Moreover, with French forces using air strikes to keep the rebels away, the war expanding to the western region remains a remote possibility. Further, the Mali Government has more than 20% interest in Randgold mines; hence, it would try to make sure Randgold keeps on track.  The bottom line is that the war is expected to end in the near future so it shouldn’t hurt Randgold’s mining.  

Valuation

Randgold’s trading at a forward P/E (1yr) of 11.56x compared to its industry’s P/E of 11x. Hence, most of the market is bullish about Randgold amid high earnings potential in the upcoming years. Its PEG is 1.69; incorporating a dividend yield of 0.40%, it gives us a healthy PEGY of 1.63. Moreover, a mean target price of $126 on the sell side depicts that it has an upside of almost 34%. In short, it’s a must buy in the gold industry.

Sandstorm Gold

On Jan. 29, Sandstorm Gold (NYSEMKT:SAND) purchased 33.7 million shares of Premier Royalty plus 7 million warrants from Premier Gold Mines. Moreover, on the very next day, it purchased another 11 million Premier Royalty shares. This means that the Sandstorm Gold now owns 59.95% of Premier Royalty’s outstanding shares. Sandstorm wants to capitalize on the quality royalties owned by Premier Royalty, which are being operated by one of the best known miners.

Earlier, the company signed an agreement with Mutiny Gold which would enable the company to acquire 15% of the gold produced from the “Deflector Project” in Western Australia. One of the key aspects of the Deflector project is its low cost / high quality production. Plus, Sandstorm has plans of investing further in Australia amid significant exploration potential in the country.

In November, 2012, the company partnered with Serra Pelada, which would not only enable the company to get 1.5% of gold produced by the miner in 2014 but also at a reasonable cost of $400 per ounce. The deal meant that Sandstorm would also get two third of Serra Pelada’s platinium output priced at just $200 per ounce.

Sandstorm has a whopping 43% operating margin and a cash per share of $1.21. At the moment, it doesn’t have any debt and has a market capitalization of 1.06 billion. This along with its latest investment in Premier Royalty, Serra Pelada and Mutiny Gold makes it an attractive buy.

Yamana Gold

The great thing about Yamana Gold (NYSE: AUY) is its “cost per ounce of gold,” which is one of the lowest in the industry ($201). Further, it has a dividend yield of 1.6% which has increased by 550% in the last three years. Moreover, an operating margin of 37.90% depicts its huge potential to mint significant profits in the industry. Currently, the company operates mainly in the South American region including Brazil, Chile and Argentina. According to the company, it has plans of expanding its production to other countries in 2014 in order to diversify the inherent risk involved while operating in a particular region.

Valuation

Yamana Gold is trading at a forward P/E (1yr) of 13.55x and has a PEG of 1.80. It’s yielding a dividend of 1.60%; hence, it has a PEGY of 1.66. It’s currently trading at $16.53 and has a mean target price of $23 on the sell side. Thus, it is also a hugely undervalued stock and has an upside potential of almost 39%. The bottom line is that Yamana, along with Sandstorm and Randgold, are some of the top buys in the gold industry at the moment.

 

 


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