long-abandoned sector. Many have tripled, quadrupled, or even quintupled since mid-January alone! But are such epic gains fundamentally justified? Much insight into this crucial question for investors can be gleaned from the gold miners’ latest quarterly financial and operational results. Their Q2 reports just finished coming in.
Gold miners’ price-to-earnings ratios look so outrageous today because those non-cash writedowns due to extreme secular gold lows are still masking rapidly-growing operating earnings as gold recovers. The trailing-twelve-month P/E ratios extend to the past 4 quarters. So writedowns won’t roll off the books until Q4’16 in most cases, although some gold miners did their writedowns in mid-2015 instead of the end.
Once these writedowns fade into the past in the upcoming quarters, gold miners’ large and growing operating profitability will translate into big accounting earnings. That will vastly collapse industry P/E ratios, and expose the serious value inherent in gold stocks that’s now obscured. Gold stocks can’t be analyzed in conventional valuation terms until trailing-twelve-month accounting profits actually reflect operations.
Back in Q4’15, gold miners’ very survivability was called into question thanks to gold’s dire secular lows. Yet they were never at risk as evidenced by low cash costs, which are the acid test of any gold miner’s viability. They include all cash necessary to produce each ounce of gold, including all direct production costs, mine-level administration, smelting, refining, transport, regulatory, royalty, and tax expenses.
http://www.gold-eagle.com/article/gold-miners%E2%80%99-q2%E2%80%9916-fundamentals
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