This Sector Is Suddenly a Gold Mine of Value
Feb 14th 2012 11:22AM
Updated Feb 14th 2012 11:24AM
With the Nasdaq Composite at an 11-year high and the S&P 500 ticking to a new 3.5-year high, finding good values is becoming tougher by the day. Even though earnings have generally been stronger than expected up until now, I would hardly say that stocks are cheap on a historical basis.
So you can just imagine my amazement when a recent round of stock screens in search of good values began popping up a long list of gold and silver miners - specifically the junior miners (a loose term describing smaller-scale mining companies).
The year of the junior miner
Over the past few years, as gold prices have climbed, many of the miners have been left in the dust because of myriad problems. Whether it's permitting, equipment, milling, or just overzealous forecasting, most now find themselves just marginally higher than when gold began its run. But is the fortune of these junior miners about to change? This digger has his value ax out and he surely thinks so!
Each of these four junior miners represents a compelling buy argument on value sake alone:
|Jaguar Mining (NYS: JAG)||2.0||12.5|
|Golden Star Resources (ASE: GSS)||1.2||6.8|
|Claude Resources (ASE: CGR)||1.3||6.5|
|Great Panther Silver (NYS: GPL)||3.8||11.0|
Jaguar Mining piqued my interest back in December when it received an unsolicited $1 billion offer from Shandong Gold Group. Although the company didn't choose to act on that offer, that doesn't mean that interest doesn't still exist. The company's Gurupi project -- which it purchased from Kinross Gold (NYS: KGC) in 2009 for just $39 million -- could hold an estimated resource value in the ground of $4 billion. Jaguar simply doesn't have the appropriate capital to get mining operations there off the ground. I would anticipate that bigger names with deeper wallets in the mining sector could make a bid for Jaguar sooner rather than later to gain access to Gurupi.
Golden Star Resources has struggled for years with high mining costs and equipment downtime. I would like to think (especially since I own the stock) that at some point equipment issues aren't going to do this miner in and its Bogosa/Prestea mine will live up to expectations. At just a 19% premium to its book value and with sales forecast to grow by 31% in 2012, according to estimates on Yahoo! Finance, this company continues to look like it will one day prove to be the bargain it looks like on paper.
Claude Resources just last week updated its 2012 numbers and forecast gold production of 50,500 ounces -- a 13% jump over 2011 from its Seabee Gold Operation. That doesn't seem too shabby for a company that spent a fortune last year on equipment and milling upgrades. With one-time expenses out of the way, Claude will likely erase a four-quarter streak of missing Wall Street's estimates and barrel past them easily. At 6.5 times forward earnings, Claude is easily the cheapest company in the sector based on that metric.
Just to mix things up, I threw in a silver miner, Great Panther Silver. Lower-grade ore has been putting quite the kibosh on Great Panther's stock for a couple of quarters now, but as Foolish mining guru Christopher Barker has pointed out, you'd be short-sighted if you expect this to last. With many more years of mining to be had from its Mexican mines and $35 million in cash with relatively no debt, Great Panther looks like a genuine bargain at just 11 times forward earnings.
The junior mining sector has quietly become an attractive value play. Could this be the year that mining stocks outperform their underlying metal? I think so. The four above represent solid turnaround value plays in an otherwise overheated market.
What junior miner has your attention? Share your idea in the comments section below. Also consider adding these four junior miners to your free and personalized watchlist using the links below.
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- Add Jaguar Mining to my watchlist.
- Add Golden Star Resources to my watchlist.
- Add Claude Resources to my watchlist.
- Add Great Panther Silver to my watchlist.
At the time this article was published Fool contributor Sean Williams owns shares of Golden Star Resources, but has no material interest in any other companies mentioned in this article. He loves gold but would not describe himself as a flake. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 that's as good as gold.
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