2 cheap gold stocks for ambitious investors

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Centamin gold mine

I've got my eye on two gold stocks right now. Both look cheap and very buyable to me at their current prices.

The first, Egypt-focused Centamin(LSE: CEY), released its half-year results this morning and reiterated its previous guidance on production and costs for the full year. The shares are little changed from yesterday's close of 167p, valuing the FTSE 250 firm at £1.9bn.

Reset for future growth

Centamin produced 235,828 ounces of gold in the first-half at an all-in sustaining cost of $871. With its open pit now into higher grade sectors and operations across the mine performing well, management said: "We look forward to a strong second half of the year and maintain our full-year guidance of 540,000 ounces at an all-in sustaining cost of $790 per ounce."

Production will be lower and costs higher than in 2016 and with profit-sharing with the Egyptian Mineral Resources Authority also fully kicking-in this year, we can see 2017 as a year that resets the top- and bottom-line numbers as a benchmark for future growth. And that future growth makes the shares cheap, in my view.

Compelling valuation

Analysts are forecasting Centamin will post earnings per share (EPS) of 11 cents (8.3p at current exchange rates) this year, with a 27% increase to 14 cents (10.6p) next year. This gives price-to-earnings (P/E) ratios of 17 and 15.6 and a highly attractive price-to-earnings growth (PEG) ratio of 0.6.

At the Q1 stage, the company had said there was "potential in the coming quarters to deliver higher gold output and lower costs than our base case outlook." This could have led to a beat of EPS forecasts and I'm a little disappointed the statement has been quietly dropped from today's report. Nevertheless, I think the valuation, as is, remains compelling. Particularly as Centamin is debt-free and has cash, bullion on hand, gold sales receivables and available-for-sale financial assets of $333.6m (£253m or 22p a share).

There's also a decent dividend in prospect. Analysts are forecasting 6 cents (4.55p), followed by 7 cents (5.3p) next year, giving a yield of 2.7%, rising to 3.2%.

Another gold prospect

Centamin's FTSE 250 peer Polymetal International (LSE: POLY), whose main operating assets are located primarily in the Russian Federation, is another gold miner I think is cheap right now and where the potential rewards could be substantial.

Analysts are forecasting EPS of 105 cents (79.5p) this year, with a 17% increase to 123 cents (93.2p) next year. At a share price of 912p, this gives P/Es of 11.5 and 9.8 and the same attractive 0.6 PEG ratio as Centamin.

Unlike the Egypt operator, Polymetal has net debt of $1.33bn (£1.01bn or 234p a share), but it doesn't look too stretched against a market cap of almost £4bn. Indeed, the board has signalled its confidence in the company's financial position by bringing in a new dividend policy that increases the payout to 50% of earnings from 30% previously. Based on the EPS forecasts, this would imply generous dividend yields of 4.4% this year and 5.1% next year.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.