With a P/E of just 2, is this gold miner the year's best bargain?

Has beaten-down gold miner Beadell Resources (ASX:BDR) been missed by value investors, or is it a value trap?

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Let's face it; a company with a price to earnings (p/e) ratio of just two is more likely to be a lump of coal than a diamond in the rough, but has the market overlooked Brazilian-focused gold miner Beadell Resources Ltd (ASX: BDR)?

It may not have costs as low as Newcrest Mining Limited (ASX: NXM), but it currently sells for well below its net assets, with a price-to-book value of less than one (0.79). In addition, the positive p/e ratio means the company is at least declaring a profit. So what are the company's prospects?

Beadell had a bad start to the year after above average rainfall pushed up its All-In Sustaining Costs (AISCs) to produce gold in the first six months of the year.

However, the real reason the company's share price has been decimated 71% in 2014 is management's blow-out of costs relative to the guidance they set for the second half of the year, combined with the falling gold prices.

Costs rising

In Beadell's June Quarterly Report the company advised that AISCs were "expected to be in the range of US$805 – US$855 per ounce" in the second half of 2014. But for the most recent September quarter Beadell revealed one of the worst AISCs of a selection of listed gold miners. Costs per ounce were US$1,150 for the quarter – 34.5% above the company's top guidance range.

This also puts Beadell perilously close to losing money at the current gold price of US$1,185 per ounce. Beadell's costs were slightly below those of Silver Lake Resources Limited (ASX: SLR), but Silver Lake had some protection in place with gold price hedging.

Where to from here?

Beadell's immediate fate rests on the future of gold prices and keeping costs down to protect margins. Unfortunately, according to a recent Bloomberg article commodity analysts' expectations are for the gold price to hover around US$1,050 per ounce for the remainder of the year, with no positive sentiment heading into 2015. If this is the case and Beadell's costs remain high then it could tip into negative earnings.

Motley Fool contributor Regan Pearson does not own shares in any company mentioned.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »