Don't Miss These 3 Gold Miners

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

Peter Franklin Palmedo manages a portfolio worth over $2.4 billion for Sun Valley Gold. Going with the big fund managers is advantageous at times, as they have the resources that individual investors don’t. However, not all of their picks lock in solid returns, and it’s always advisable to spread the risks by creating a portfolio of investments.

Gold has been volatile lately, owing to fears of fiscal cliff, hyperinflation, global economic slowdown, and the crash of the Euro. However, investing in gold-based companies offers relatively steady returns. Since gold is trading at inflated prices, it would make more sense to pick well-performing companies than to initiate risky positions. Peter Franklin has positions in the following stocks.

Kinross Gold (NYSE: KGC)

The company was able to shrink its capital expenditures from $2.2 billion to $2 billion. Also the quarterly net earnings rose from $207.1 to $224.9 million year over year, beating inflationary pressures. The company’s proven gold reserves stood at 62.4 million ounces, and management announced that it's well on track to achieve its annual gold production target of 2.5 – 2.6 million ounces, with production cost per ounce between $690 - $725. With the looming global economic uncertainty and macro-fears fueling gold’s run up, the company would now be able to realize higher gold prices with increased production levels.

KGC trades at an attractive forward P/E of 8.8x and P/B of 0.88x. The debt/equity levels are at a healthy 16%, and to top it all off, shares of KGC yield 1.62%.

​Barrick Gold

According to Reuters, Barrick Gold (NYSE: ABX) has nearly 140 million ounces of gold reserves and over 1 billion ounces of silver reserves. With these reserves, the company seems fit to cater to the rising global demand for gold. Despite the bull run in gold prices, Barrick Gold’s quarterly earnings declined from $0.99 to $0.85 year over year, owing to an increase in capital expenditures. Management also went ahead to increase the planned capital expenditure at Pascua Lama Project by $1 billion, and they doesn’t seem to have a solution to the rising expenditures except for a price raise. Overall production dipped year over year, and in September alone gold production from its Australian operations dipped by nearly 25%. These numbers suggest that there’s nothing optimistic about Barrick Gold (at least for now), and in my opinion investors should look to avoid this Peter Franklin stock.

Anglogold Ashanti (NYSE: AU)                  

Anglogold also reported disappointing numbers with a 3% dip in quarterly production year over year and 4% dip on a sequential basis. Earnings fell by 7% due to increasing wages and lower by-products. Also the company’s net debt rose by nearly 79% and the capital expenditures rose by nearly 21%. The numbers may portray a doomsday picture, but here’s the reality. The massive jump in debt was due to the acquisitions of Sierra Grenade and Mine Waste Solutions, and since both the companies have positive free cash flows, management expects the cash flow situation of KGC to improve, and debt levels to decline over time. Also, Sierra Grenade would add to the existing gold production, which would help Kinross Gold realize higher gold prices at increased production levels. As far as stressed earnings are concerned, management decided to withhold Q4 guidance due to the recent downgrade of South Africa’s sovereign ratings.

In my opinion, Anglogold could be a speculative play, with huge risks and rewards involved, and investors should proceed accordingly. I believe that investors should look to invest in Kinross Gold, and avoid Barrick Gold due to all the mentioned reasons.


PiyushArora has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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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