All that Glitters is Usually Gold With these Majors

Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Gold stocks have a penchant for shining brilliantly at times, while losing their luster at other times. It's the nature of the sector; investors should carefully consider this before hunting for the treasure of a perfect gold stock.  Preferring gold in today's economic climate means being willing to ride out waves of price variance. It's enough to get those gold fillings rattling when this happens. However, the potential for significant ROI exists with gold stocks. Quality gold companies can offer value to investors who examine company management and their strategic plans for growth.

As the Humphrey Bogart character, Dobbs, said in the film The Treasure of the Sierra Madre, "Think I'll go to sleep and dream about piles of gold getting bigger and bigger…" Today's savvy investor should dream of their favorite gold company getting bigger, bigger, and more efficient.

Barrick Gold Corporation (NYSE: ABX) operates around the world and is the leader in production, reserves, and market capitalization in the gold sector. Among the Company's operations are the Hemlo Project in Canada, Cortez in Nevada (one of the world’s largest and lowest cost gold mines), the Pueblo Viejo JV in the Dominican Republic, Veladero in Argentina, and Lagunas Norte and Pierina in Peru. The company also has their Australia Pacific and Papua New Guinea gold operations.

This is something for investors to consider – diverse gold operations spread across multiple jurisdictions – and the companyis  not pigeonholed in one area with one operation. Investors like to diversify their portfolios, so it's wise to look into companies that diversify in terms of their projects, while not engaging in initiatives that stray too far from their core business.

For 2012, Barrick expects gold production of 7.3 - 7.5 million ounces total, and net cash costs of $575-$585 per ounce and $480-$585 per ounce, respectively. The expectation is that their yearly gold production will be approximately 8 million ounces by 2014. The company also has valuable copper projects. For investors, this forecasted increase in gold production can provide investment rewards. It's all about controlling cost, though, while increasing production. Furthermore, Barrick is concentrating more on free cash flow. This objective has the potential to help the company upgrade their gold portfolio, which should benefit shareholders. Any investment in gold stocks should take into consideration companies who think this way.

Eldorado Gold (NYSE: EGO) is a gold producing, exploration and development company. They have a broad focus as well, building business in Turkey, China, Brazil, Greece, and Romania. In 2013, Eldorado will produce gold from six gold mines, in addition to iron ore and lead, silver, and zinc concentrate.

The company's year-end 2012 production was 659,369 ounces of gold at a cash cost of $489. Eldorado Gold's mid-year guidance was 660,000 ounces at $465 per ounce. A caveat for investors is to be aware when companies they're interested in exceed their expected cash costs. It's not always a case of reaching for the antacids; however, choose companies that do get a handle on this most of the time. They were almost spot on in terms of gold production.

Eldorado continues to build up their production base via the expansion of existing mines and new mine development. They currently target production for the years 2014, 2015, 2016 to be approximately 850,000, 1,150,000, and 1,500,000 ounces of gold, respectively. This is vital to investors, as a company that focuses on expansion of existing assets and development of new assets is certainly a company not resting on their laurels. This operational aggressiveness is suited to conservative investors who are not actually aggressive themselves; they let major companies be aggressive for them and hope to reap the results of those efforts.

Goldcorp (NYSE: GG) expects production in 2013 in the range of 2.55 million and 2.80 million ounces of gold. They foresee production to pick up in the second half of 2013. They are basing this on the ramp up at the Pueblo Viejo Joint Venture (JV) (Dominican Republic) and higher grades at Penasquito (their newest cornerstone mine in Mexico) later in 2013.

Goldcorp estimates gold production to increase approximately 70 percent over the next five years to 4 million to 4.2 million ounces in 2017. The expectation is that average five-year by-product cash costs will remain below $500 per ounce. Again, investors need to consider these cash costs seriously. They directly relate to a company's profitability, sustainability, and investors' ROI. Moreover, a forecast 70 percent increase in gold production over the next five years does have a certain healthy glow to it. This confidence, backed by data from a company, is certainly something to take into account when buying gold stocks.

Goldcorp's board approved an 11 percent increase in its annual dividend. They will reflect this increase in the first monthly dividend payment of 5 cents per share for 2013. Going forward, investors for 2013 and beyond should look at dividend payment consistency and the overall frequency of dividend increases from gold companies they are considering. Rewarding shareholders with dividends is one reason I choose stocks, as I hope for stock price appreciation as well.

Consider the opportunities in gold, but don't let "gold fever" take over your brain. Gold corporations with strong management teams that systematically operate according to sound business fundamentals offer the best opportunities for sustained growth. Investing in them may not be exciting; nevertheless, gold does have its benefits as a precious metals investment and may be suited to those who abide by the saying of Billy Rose, American Producer and Lyricist (1899-1966): "Never invest in anything that eats or needs repairing."


MichaelONTARIO has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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