Can write-downs be around the corner?
Newcrest Mining recently stated that it is going to write down $5 billion-$6 billion of the value of its mines. Investment firm Jefferies has stated that it believes that Barrick, Newmont Mining, and Goldcorp are among other producers that could face big write-downs.
A write-down is the worst possible scenario for these stocks. The companies know that their stocks would be severely punished if they state that their mines are worth less than they previously stated. My bet is that Barrick, Newmont Mining, and Goldcorp would do everything possible to avoid such a scenario. I think that gold prices would have to stay more than half a year at current levels to make the massive write-down scenario plausible.
Gold miners have gotten so cheap that is it increasingly becoming difficult to ignore them. Barrick Gold Corporation (USA) (NYSE:ABX) trades at a forward P/E of 5, although the current price reflects the difficulties that the company faces. When gold prices rebound, the stocks that have been beaten the most would most probably rise the fastest. That’s why, Barrick is the bet with the biggest potential. At the same time, it is the riskiest bet.
Newmont Mining Corp (NYSE:NEM) and Goldcorp Inc. (USA) (NYSE:GG), which trade at forward P/E’s of 10 and 13, respectively, are safer investments with a little less upside than Barrick. On the income side of the story, Barrick yields 5.08%, Newmont Mining yields 4.67%, and Goldcorp yields 2.43%. Keep in mind that if low gold prices persist, there might be a dividend cut.
All in all, if you are bullish on gold, it is a good time to seriously consider taking positions in these gold miners.
The article Now Is the Time to Look at This Gold Giant originally appeared on Fool.com and is written by Vladimir Zernov.
Vladimir Zernov has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Vladimir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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