4 gold miners to consider for a rebound in gold prices

Have we hit the bottom?

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Gold prices have dropped as much as 36% from the August 2011 high of about US$1,900 per oz. Gold mining stocks have been pummeled even more. Once a safe haven from GFC fears, gold has turned into a much less desired asset since the financial markets have recovered.

Since the start of July, gold has recovered 14%, and if the great sell-off has passed and investors may start filtering back in, could these miners also benefit and rise in price themselves?

To know which miners have the stamina and strength to take the hits, we need to know their production levels and the total cash cost of gold production. Each mine site may vary, but the mining company will have a total cash cost of how much it takes to produce the gold they have. When that cost exceeds the price of gold, then it isn't economical to keep up production. Companies begin to cut back on work and staff, and huge write-downs in assets occur. Since 2011 Alacer Gold (ASX: AQG) had fallen from $10 to $2, AngloGold Ashanti (ASX: AGG) down from $9 to $3, Kingsgate Consolidated (ASX: KCN) down from $12 to $1.50, and Newcrest Mining (ASX: NCM) down from $40 to $10.

Alacer has one mine in Turkey with a total cash cost of $395/oz, so that is still in the money. Unfortunately, it had to discontinue its Australia-based mining because there the cost is $1,268/oz. Kingsgate's mine in Thailand has a cash cost of US$686/oz, so it is still profitable. AngloGold came in at $920/oz. Newcrest has a variety of mines, but in its 2013 annual report it stated that the company expects to be free cash flow neutral or positive at a gold price of A$1,450/oz in the 2014 financial year.

Which of these can weather the storm better until gold rebounds more? Alacer and Newcrest may be worth watching. Alacer has a low gearing ratio of about 5% and current ratios are stable above 1. Newcrest has an acceptable 41% gearing and stable current ratio, and the share price is now below book value ($12.57 vs $12.97) after a massive $6.2 billion write-down on assets.

Foolish takeaway

It has been a harsh time for these miners, but as investors, now is the time to decide whether they have been beaten down too much, and real value is evident. Gold has corrected once in 2006 and another in 2008 only to hit new highs later. With more favourable gold prices, you may be able to buy at rock-bottom stock prices. Mining can be speculative and cyclical, so the best time is when the industry is unattractive in the market.

Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading


Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »