What are we looking for?
The TSX metals and mining index is down more than 40 per cent in the past year.
The sector has been out of favour for the last five years as falling commodity prices and a slowdown in global GDP growth has dragged down mining equities.
Despite that, some companies with valuable mining assets can be purchased at deep sale prices. I am seeking mining companies in North America with solid balance sheets and positive revenues.
The screen
I screened mining companies with a market cap of more than $300-million and at least $25-million of cash and short-term investments on hand.
Mining firms with good cash reserves have a better ability to weather current market conditions.
Staying on the balance-sheet side, companies with a debt-to-equity ratio of less than 65 per cent were included in the screen .
The price to book (P/B) is a ratio of the price an investor pays for a stock relative to the book value of the firm's equity (assets minus liabilities).
A ratio of one means that an investor is paying fair value for the firm's assets whereas a value of less than one suggests shares can be purchased at a discount relative to asset value. Only companies with a P/B value of less than 1.2 were included.
To gain better insight on how efficiently these firms are managing their costs to generate revenues, I looked for operating margins of at least 5 per cent.
More about Thomson Reuters
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What did we find?
I used the Thomson Reuters Eikon screener and uncovered 10 metals and mining companies. Agnico Eagle Mines is a gold producer and exploration company with assets in North America and Europe. With gold cash costs in the low $600s, solid reserves and strong pipeline of opportunities, AEM is well-positioned in relation to their peers.
Teck Resources is selling at a price to book value of 0.28, a big discount relative to the value of their assets. Cash reserves of $1.3-billion account for 25 per cent of their market cap, which provides them with a healthy margin of safety in this turbulent market.
Investors are advised to do their own research before investing.
Charles Martin, CFA, works in the financial and risk unit of Thomson Reuters and specializes in asset management.