Categorized | Stock Market News

A Look at Gold Miners Penny Stocks


Share Button

Gold Miners Under $5

This week we are going to take a look at gold miners penny stocks and see which ones are best for investors moving forward. Gold miners have taken a major blow lately due to the huge fluctuation in gold bullion price. Since its low point in July the price of gold bullion has somewhat stabilized an remained between $1,300 and $1,350. While it would be a mistake to think gold bullion is heading towards $2,000 again anytime soon, there seems to have been a bottom and room for a rise in price over the next several years. This give investors a great opportunity to get in on gold miners while they are priced so low.

gold miners gold penny stocks

Gold Miners Penny Stocks

gold miner penny stocksFor this analysis I am going to take a look at 4 gold miner penny stocks:
• Great Basin Gold (GBGLF)
• Rubicon Minerals (RBY)
• Brigus Gold (BRD)
• Richmont Mines (RIC)

Using the techniques I have taught in my previous posts on value investing and analyzing financial statements (the statement of cash flows, the balance sheet, and the income statement). I will also be looking closely at the strengths and weaknesses of each companies management team. Lastly, I will consider the share price of each company and determine if it is cheap or expensive compared to the intrinsic value of the business.

Analyzing Gold Miners

The first step in this process is to get some baseline industry numbers. By having an industry standard we will be able to see if the companies we are looking at are performing better or worse than their competitors. For this analysis I be comparing the following metrics:
• Gross Profit %:……………………………. 40%
• Net Income: %:……………………………. -18&
• Current Ratio:……………………………… 3.97
• Interest Coverage Ratio:…………………. 15.5
• P/E Ratio:…………………………………… 6.23

Great Basin Gold (GBGLF)

great basin gold minersGreat Basin Gold has not been able to turn a profit in some time. Even when the price of gold bullion was strong they were not making a profit. I was unable to locate any information on the company’s CEO Raymond Dombrowski. Whenever I have trouble finding the information I need to make an educated investment decision I do not make an investment in that company. Without looking at everything you are taking a huge risk. If the company chooses not make their financial, management or developments public then I choose not to make an investment in them. If Great Basin Gold was very strong company I would try and call them to locate the information I need. However, after looking at the information I do have available this company would be solely a speculation play.

Great Basin Gold’s Key Statistics:

• Gross Profit %:……………………………. 40%
• Net Income %:……………………………. -26%
• Current Ratio:……………………………… 0.78
• Interest Coverage Ratio:…………………. 0.032
• P/E Ratio:…………………………………… n/a

Rubicon Minerals (RBY)

rubicon gold minersRubicon Minerals does not make any revenue. They are holding a few mining properties in Canada and The United States. The company was founded in 1996. Since this company has not turned any revenue I can safely assume they are planning on selling or leasing the land to another mining company at some point in the future. If I was to make an investment in this company I would look deeper to find out their plans regarding the properties they own. The company’s balance sheet is very strong as they have very little liabilities compared to their assets. In fact, they have more cash on hand then liabilities.

The company is priced at $1.35 per share with 288.6 million shares outstanding. This means the market is valuing this company at 389.6 million dollars. The first step here is to figure out the value of the land they own. After determining the value we can compare our intrinsic value to the market value of the stock. On their financial statements they have their land currently valued at 299.2 million. However, this is not the correct way to get an accurate valuation. Since I don’t have time to call the company to do more research on this property we will take their valuation of the property at face value. As is stands this company’s intrinsic value is 461 million which is well above the market value of 389.6 million. If i was certain the fair market value of the properties was 299.2 million this would be a great investment. However, as a curious investor I would have to do a lot more digging to uncover the true fair value.

Note: For this valuation we would use the net asset approach (holding company). This is the fair market value of its assets minus its liabilities.

Rubicon Minerals Key Statistics:

• Gross Profit %:…………………………….. no revenue
• Net Income %:…………………………….. no revenue
• Current Ratio:……………………………… 10.32
• Interest Coverage Ratio:…………………. -262.042
• P/E Ratio:…………………………………… n/a

Brigus Gold (BRD)

brigus gold minersBrigus Gold looks to be the strongest company out of the four. It is the only company that made a profit, and it has a favorable current ratio, interest coverage ratio and gross profit margin. The company has a market cap of $140 million. The company’s CEO is Wade K. Dawe. After looking at Mr. Dawe’s resume he has some pretty stellar accomplishments and has been in the mining business his entire career. When you are researching a board member you want to see what other companies they headed (if any), or if they were directors, CFO’s, CMO’s, etc. at other companies. Then you want to look at the performance of that company’s division while they were in charge. As you can see this can become very time consuming, but it can also be very rewarding.

Note: To value Brigus Gold we need to use the DCF approach (discounted cash flows). To do this we will extrapolate Brigus Gold’s cash flows out for the net 5 years and discount them back to their present value. Then we simply compare the DCF to the company’s market cap to determine if this is a suitable investment.

Brigus Gold Key Statistics:

• Gross Profit %:……………………………. 52%
• Net Income %:…………………………….. 16%
• Current Ratio:……………………………… 1.15
• Interest Coverage Ratio:…………………. 30.974
• P/E Ratio:…………………………………… 6.23

Richmont Mines (RIC)

richmont gold minersRichmont Mines had negative income this year for the first time in a while. Immediately off the bat this tells me this company is inefficient at controlling the costs to extract gold. Since the price dropped so greatly on gold bullion many companies in this market have been experiencing net losses because their costs to extract the minerals was so great. When the price of gold goes up this company will return to profitability (assuming its extraction costs don’t rise even more).

Note: Richmont Mines would also be valued using the DCF method. This one will be trickier to value then Brigus, however. Since this company’s profitability will only return if the price of gold returns to previous levels you will need to factor that into your valuation. To me this is a big red flag because you are counting on the price of something else in order for the company to return to profitability. Gold mining is getting far more expensive as the years pass, and it will not all of a sudden become cheaper to do.

Richmont Mines Key Statistics:

• Gross Profit %:…………………………….. 27%
• Net Income %:……………………………. -45%
• Current Ratio:……………………………… 3.63
• Interest Coverage Ratio:………………….. n/a
• P/E Ratio:…………………………………… n/a

Wrap Up

Unfortunately, I do not have the time to value these four companies completely, I just wanted to get you started in the right direction. Be curious when you are making an investment. The more information you can learn the better decision you can make. I posed different problems for each company we looked at today, because I wanted you to see the thought process behind an entire valuation. Ideally you would want to answer all these questions for every company to get a clear picture. For penny stocks this can be an arduous task because the information is not always readily available. You may have to pick up the phone and talk to representatives of the company to learn more information.

Stay up to date on investment strategy by getting on our FREE eMail list!

This post was written by:

- who has written 2169 posts on StockRockandRoll.


Contact the author

One Response to “A Look at Gold Miners Penny Stocks”

  1. chitra says:

    Thanks for providing the information about the companies. Your articles are good to read.

Trackbacks/Pingbacks



© 2021 MJ Capital, LLC | All rights reserved