Time to Buy Gold Mine Stocks

Gold mining stocks have underperformed gold and  general stocks for over a year:

Gold Mines, MSCI World and Gold, Source: Reuters

General investors have given up on goldmines. One reason is, according to Joe Frost of Van Eck, their focus on increased mining costs during the last quarters, while neglecting that the high profit margins remain high or are even increasing.

According to Walter Wehrli, Erich Meier and Marc Gugerli of Konwave AG, manager / adviser of various gold equity funds, costs have gone up due to increased energy prices, the treatment of lower grade ore (which became profitable due the higher gold price), and higher equipment costs. They expect costs to  decrease in the future.Hence, the situation is now very favorable for gold mining stocks:

• Gold remains high due to the risks of inflation and the risk of instability of the world economy.
• General investors have abandoned gold stocks, but they are expected to buy mines as the quotes move higher from the lows of May 2012. Low M&A activity also points to a market low.
• Mines are valued favorably with low PEs, nice dividend yields, and deliver growth opportunities.
• Gold miners have lower debt on their balance sheets and are more cautious with new capex programs, decreasing the risk of unsuccessful investments.