Thursday, September 1, 2016

Precious Metals Stocks - A Short Look At Current Valuation Metrics

Since their peaks, established in August 2016, precious metals stock prices corrected significantly. For example, GDX fell 19.8% and GDXJ 20.3%. There were stocks, which dropped even more:

  • Goldcorp: 24.2%
  • Richmont Mines: 26.9%
  • B2 Gold: 28.3%
  • IAMGold: 37.0%
  • First Majestic: 37.2%
just to name a few big ones.

Although the correction is still intact, I think it could be interesting to look at  current valuation metrics. Below I present the chart showing a multiple of EV / EBITDA (enterprise value to EBITDA), calculated for a number of mining companies as of August 31, 2016:

source: Simple Digressions

The average multiple stands at 13.7 (horizontal line market in red). As the chart shows, the highest multiples are mainly related to silver miners (Impact, Endeavour Silver, First Majestic, Fresnillo, Fortuna etc.).

The lowest multiples are attributed to big miners (Barrick, Newmont, Yamana), companies in trouble (Orvana, Banro, Kinross) or forgotten miners (Dundee, Oceana Gold).

I guess some investors, in their search for hidden value, may consider buying the stocks showing a low multiple because, generally, low multiple means a  cheap stock. 

Well, generally, yes. But be careful. Sometimes a high multiple is attributed to a company presenting buying opportunity and, vice versa, low multiple means problems and investors should stay away from such a "cheap" stock (for example, Orvana Minerals, Banro Corp or Hochschild plc).

I think I will discuss  some interesting cases of miners with high or low multiples soon.

Now, let me summarize the current situation in the following way:

After an impressive bull run in gold / silver stocks (seen in 1H 2016), the ongoing correction presents a number of buying opportunities. Once again.   


  1. I bought more NMKTF today. It has held up fairly well and the value is there as per your chart.

    1. Harry,
      Yes, there is tremendous value in these stocks.

  2. I put a link to the "angry geologist" review of Timmins on your SA article on the company.

  3. Harry,
    Thanks. I have looked at this blog. Well, this geologist seems to be too angry. I appreciate Rick Walters remarks much more.