With a P/E of just 2, is this gold miner the year's best bargain?

Has beaten-down gold miner Beadell Resources (ASX:BDR) been missed by value investors, or is it a value trap?

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Let's face it; a company with a price to earnings (p/e) ratio of just two is more likely to be a lump of coal than a diamond in the rough, but has the market overlooked Brazilian-focused gold miner Beadell Resources Ltd (ASX: BDR)?

It may not have costs as low as Newcrest Mining Limited (ASX: NXM), but it currently sells for well below its net assets, with a price-to-book value of less than one (0.79). In addition, the positive p/e ratio means the company is at least declaring a profit. So what are the company's prospects?

Beadell had a bad start to the year after above average rainfall pushed up its All-In Sustaining Costs (AISCs) to produce gold in the first six months of the year.

However, the real reason the company's share price has been decimated 71% in 2014 is management's blow-out of costs relative to the guidance they set for the second half of the year, combined with the falling gold prices.

Costs rising

In Beadell's June Quarterly Report the company advised that AISCs were "expected to be in the range of US$805 – US$855 per ounce" in the second half of 2014. But for the most recent September quarter Beadell revealed one of the worst AISCs of a selection of listed gold miners. Costs per ounce were US$1,150 for the quarter – 34.5% above the company's top guidance range.

This also puts Beadell perilously close to losing money at the current gold price of US$1,185 per ounce. Beadell's costs were slightly below those of Silver Lake Resources Limited (ASX: SLR), but Silver Lake had some protection in place with gold price hedging.

Where to from here?

Beadell's immediate fate rests on the future of gold prices and keeping costs down to protect margins. Unfortunately, according to a recent Bloomberg article commodity analysts' expectations are for the gold price to hover around US$1,050 per ounce for the remainder of the year, with no positive sentiment heading into 2015. If this is the case and Beadell's costs remain high then it could tip into negative earnings.

Motley Fool contributor Regan Pearson does not own shares in any company mentioned.

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