Shares in gold mining major Newcrest Mining Limited (ASX: NCM) could be at bargain levels and represent prospective value for canny investors willing to take some risk.
That’s because at its current share price of $10.41 per share, the company can be picked up for less than the value of its net assets. With a market capitalisation of $7.979 billion and net assets of $10.274 billion (at 31 December 2013), Newcrest can be owned today at a price to book (P/B) ratio of 0.77.
Generally, a low P/B ratio would suggest that the company is not producing an adequate return on its assets, but could also suggests that investors do not have faith in the pricing of the assets, which for gold miners can fluctuate along with gold price changes, resulting in a level of uncertainty.
However Newcrest is forecasting a strong production result for FY 2014 and being among the lowest cost gold miners in the country, the return the company makes on its assets could quickly turn if the price of gold tracks upwards.
Another gold miner trading below book value is Silver Lake resources (ASX: SLR). At a current market cap of $211 million and net assets (at 31 December 2013) of $361.6 million the company’s P/B ratio is just 0.58 – not far off half the net asset value.
Silver Lake share have suffered after placing its Murchison Gold Operations into care and maintenance due to unsustainable production costs, but remains a potential producer.
However the lowest by far, with a P/B ratio of just 0.41, is Kingsgate Consolidated Limited (ASX: KCN). Shares in Kingsgate have dropped almost 85% in the last two years and are near all-time lows after reporting high group all-in sustaining costs for the most recent march quarter.
With a current market cap of $195 million according to Bloomberg, and reported half year 2014 net assets of $474 million, Kingsgate could be a bargain if it can fix its cost problems and produce a positive return on its assets.