A Long-Term Warning From Peter Mycroft Psaras

He analyzed major gold companies from a free-cash-flow and free-cash-flow-to-invested-capital perspective, and concluded that the rates for those companies were lousy over the long term. Out of the twenty-eight gold companies he analyzed, only two had acceptable ratios in both: Freeport McMoran and Golden Star Resources. His advice is to stick with physical gold unless there is special reason (like a good market for the next few years) to believe that free cash flow for gold companies will increase considerably.


There may be reason, from a contrarian standpoint. The gold industry may be in last place by those metrics, but the last can be first if conditions are right. There's already signs that the seniors' cash flow is perking up in a big way, although it may be shunted into more capital expenditures.