Gold Miners are Cheap, Cheap, Cheap!

Super Pit gold mine at Kalgoorlie in Western Australia is Australia's largest open-pit mine (Photo credit: Wikipedia)

Gold mining shares deserve their own discussion. I am bullish on gold without qualification. I am also bullish on gold miners…but with one very large qualification: they must produce positive cash flow. I think the bull market in gold is intact. And I think gold prices will make highs within a year. However, gold stocks have done poorly. Few have been spared. Like the other mining companies, they suffer from the same affliction: an eager willingness to take whatever cash they generate and dump it right back into the ground.

So even though the four largest listed gold miners — Goldcorp, Barrick, Newmont and Newcrest — generated $47.5 billion in operating cash flows in the last decade, they spent $62.5 billion in new mines, acquisitions and other capital expenditures. The big four have made no money in one of the greatest gold bull markets on record. In fact, they’ve lost money. How did they make up this deficit? They sold more shares to the ever-gullible public — always a sucker for a good story about buried treasure. The number of shares outstanding rose 117% in the decade. I’ve railed before about the management of gold miners. And I’ve tried to find gold miners in which the management teams do intelligent things. But it is hard. Even when you think you have found a team that says all the right things and looks as if it can do it, it does stuff that makes you scratch your head.... Continue to read.

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