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2 Gold Miners in Focus, 1 to Watch Closely

Chris Lau, Kapitall: While most investors watch gold miners Barrick and Goldcorp, gold enthusiasts shouldn't overlook Newmont Mining.

Stocks related to gold were poor performers in 2013, but 2014 is promising to be a rebound year. Gold is up 5.21% year-to-date, based on the performance of the Gold ETF (GLD). Stocks of gold miners are doing even better, recordning 13.16% average returns so far. Speculation abounds as investors guess if gold prices will hold, but there are opportunities beginning to develop. 

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Barrick Gold ( ABX ) trades at a forward P/E of just 10. High debt and a pressing need to lower operational costs are hurting its share price. Changes in management might be required to speed up the restructuring at Barrick. A large investor wrote to express surprise over the resignation of two directors. The investor also wants Peter Munk’s son, Anthony Munk, to resign. 

Goldcorp ( GG ) was cited by investment firm Barclays as a company that has strong production growth, declining capital obligations and costs, and less debt on a relative basis. Goldcorp is more richly valued, trading at a forward P/E of 28.

Newmont misses rally

Newmont Mining ( NEM ) is an underperforming gold miner that could provide an asymmetrical risk/reward opportunity. On January 31, the firm provided preliminary guidance for 2014 that was lower than consensus. Uncertainty stemming from Newmont’s extensive Indonesia operations (the country is threatening to ban copper concentrate exports until January, 2017), the fear of lower dividends, and a possible credit downgrade are all contributing to a lower stock price. Newmont shares are down almost 51% over a one-year timeframe. 

In Q4, copper production was 144 million pounds, which sold at the high end of Newmont’s outlook. Possible strict Indonesian export permits and escalating tax increases are worrying investors. These uncertainties could linger a while, but any progress in resolving the differences will be positive for Newmont.

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