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Strategies & Market Trends : Ride the Tiger with CD
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To: Proud Deplorable who wrote (20121)11/16/2004 12:07:11 AM
From: The Vet  Read Replies (2) of 313106
 
mostly don't apply to mining stocks. PE ratios and Earnings are not a good way to invest.

Good advice ralph, but even so called analysts can't figure that out.

A mine is a finite resource. The first day you start extracting metal is the start of the decline of the value of that mine. Industrial and technology stocks are usually not limited by the availability of their raw material and they make value by expertise or process which can grow providing they can find a market for all they produce.

Gold miners can always market 100% of their output but the more they produce and sell, the less they have left. Earnings and PEs can be "improved" by high grading which ultimately reduces the potential value of the mine and often leaves reserves that could have been mined, uneconomic. In the end regardless of their past earnings or PE during the mine life, all that is left is worn out, rusting machines and a hole in the ground that costs money to reclaim.

Logically, on the day that a mine with all the infrastructure in place and ready to go that has never produced an ounce of product (no PE or earnings)starts mining the enterprise value should be at it's maximum. This is obviously oversimplified, but I always believe that the first place to look at any gold mining operation is the remaining P&P reserves.
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