Year to date, gold has averaged $1,611/oz on the front month futures. Assuming these prices, ABX can be expected to earn around $3.38 in EPS. This puts the company at 5.6x forward earnings. This figure seems super cheap, but when in the context of mid-single digit production growth it makes sense. Gold production is only expected to grow 4.9% in 2013, and the average production growth until 2017 is expected to be flat 0.7%. Moreover, at these prices ABX is expected to be FCF negative this year.
From the prospective of technical analysis, the October low of 2008 will prove to be an important pivot point. This low is roughly $17.27 and it seems as though we are destined to touch it. Should ABX and the mining sector snap back, a decent target could be the 50 DMA at $29, while this may seem aggressive, it only took 12 trading days to get to this level from the aforementioned level.
All things considered, the mining sector is full of problems, but when everyone is looking down, maybe it is prudent to look up…with a tight stop.
