Allied Nevada Gold Corp. (ANV), Royal Gold, Inc (RGLD) & Newmont Mining Corp (NEM): Is Value Emerging in These Gold Miners?

The sell-off in gold must still be fresh in investors minds as it had a significant bearing on the stock market, as well. The price of the precious metal was down close to 8% in April. The Cyprus-inflicted panic substantially shaved the valuations in gold mining firms, such as Allied Nevada Gold Corp. (NYSEAMEX:ANV), Royal Gold, Inc (NASDAQ:RGLD), and Newmont Mining Corp (NYSE:NEM), which begs the question — is this is the right time to start buying shares in a depressed market? Here’s a closer look at each company.

Allied Nevada Gold Corp. (NYSEAMEX:ANV) is a producer of gold and silver and as prices of both precious metals have crashed, the stock has been at the receiving end of the market, losing consistent market value since November. The sell-off has caused a value erosion of over 65% so far this year. There is still no telling if this is the bottom, but the stock certainly looks attractive at a forward price-to-earnings ratio of 4.2.

It’s worth noting that this valuation is based on financial models which have already factored in the expected weakness in gold prices. As such, any surprises in terms of a further drop in gold prices are expected to be limited. This effectively means that unless the company flounders big time on operational issues, its profits are likely to be flat.

Since Allied Nevada Gold Corp. (NYSEAMEX:ANV) is in expansion mode, it’s not surprising to see the effect of lower-gold prices being offset by higher production to a large extent. This is what happened in the quarter ended Dec. 31, 2012 when revenue doubled.

Royalty interest is the way forward

Royal Gold, Inc (NASDAQ:RGLD) is down 18% in recent sessions, and has shed 34.6% since January. The company is not a mining firm and largely operates through acquiring royalty interests in existing projects.

As of Dec. 31, 2012, the company had interests in 39 producing properties, 28 development-stage properties and 138 exploration-stage properties, and had nearly 60% percent of its revenue coming from the North American markets.

It’s not that falling gold prices does not affect the company, but a non-mining business model at least keeps variable costs out of the equation. This was probably the reason why it was given a ‘Buy’ rating last month by BB&T Corporation (NYSE:BBT) Capital Markets with a target price of $85, reflecting huge upside considering its recent price of $51.60. In addition, a less-leveraged balance sheet is a net-positive to take the stock higher when gold prices recover.