Digging For Gold: Part 1

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

A long time ago, before private investors had access to complex financial instruments, or the ability to buy small amounts of secure bullion on line. The only way of investing in gold was to buy shares in a Gold miner. Nowadays there are many other options to invest in gold. However which would be the best gold miner to invest your cash in today?

Over the next three blog posts I will be looking at the 4 biggest gold miners traded on the NYSE and deciding if they present suitable investment opportunities.

I will be looking at several key areas:

Part 1: I will be introducing the companies, providing a summary overview and looking at key metrics.

Part 2: I will be looking at the key financial ratios, including debt and margins across the businesses.

Part 3: I will be looking at historic and current shareholder returns, including correlation to the gold price and returns vs. the S&P 500

So lets have a look at the companies.

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Market Cap. </p> </td> </tr> <tr> <td> <p>Barrick Gold Corporation (USA)</p> </td> <td> <p>$34 <span>Billion</span></p> </td> </tr> <tr> <td> <p>Goldcorp Inc. (USA)</p> </td> <td> <p>$33 <span>Billion</span></p> </td> </tr> <tr> <td> <p>Newmont Mining Corp</p> </td> <td> <p>$23 <span>Billion</span></p> </td> </tr> <tr> <td> <p>AngloGold Ashanti Limited (ADR)</p> </td> <td> <p>$12 <span>Billion</span></p> </td> </tr> </tbody> </table>

These are the companies I will be looking at during this series. Barrick Gold (NYSE: ABX) and Goldcorp (NYSE: GG) are the two biggest firms. Barrick Gold is the largest but only just. I will also be looking at Newmont Mining (NYSE: NEM) and the significantly smaller, South African based AngloGold Ashanti (NYSE: AU).

Production Figures

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Gold Production </p> </td> <td> <p>Other metals</p> </td> </tr> <tr> <td> <p>Barrick Gold Corporation (USA)</p> </td> <td> <p>7.7 <span>Million Oz</span></p> </td> <td> <p>450m Oz Copper</p> </td> </tr> <tr> <td> <p>Goldcorp Inc. (USA)</p> </td> <td> <p>2.5 <span>Million Oz</span></p> </td> <td> <p> </p> </td> </tr> <tr> <td> <p>Newmont Mining Corp</p> </td> <td> <p>5.2 <span>Million Oz</span></p> </td> <td> <p>206m Oz Copper</p> </td> </tr> <tr> <td> <p>AngloGold Ashanti Limited (ADR)</p> </td> <td> <p>4.33 <span>Million Oz</span></p> </td> <td> <p> </p> </td> </tr> </tbody> </table>

These are the production figures for each company based on year end 2011. The companies are still in order of market cap. We can see that although Barrick Gold is still the biggest producer – the much smaller Newmont has a much larger Gold and Copper production than its larger competitor Goldcorp. Even AngloGold with a market cap one third of Goldcorp, has higher production.

Revenue and Profits

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Revenue Billion 2011</p> </td> <td> <p>Profits 2011 Billion</p> </td> </tr> <tr> <td> <p>Barrick Gold Corporation</p> </td> <td> <p>$14.31</p> </td> <td> <p>$4.7</p> </td> </tr> <tr> <td> <p>Goldcorp Inc. </p> </td> <td> <p>$5.3</p> </td> <td> <p>$1.9</p> </td> </tr> <tr> <td> <p>Newmont Mining Corp</p> </td> <td> <p>$10.4</p> </td> <td> <p>$3.6</p> </td> </tr> <tr> <td> <p>AngloGold Ashanti Limited</p> </td> <td> <p>$6.6</p> </td> <td> <p>$1.6</p> </td> </tr> </tbody> </table>

Taking a look at the revenue and profits of each company we can see once again, Goldcorp is beaten by is significantly smaller rivals. To really understand these figures we need to be able to see the production costs of each firm to determine the efficiency.


<img src="/media/images/user_14485/gold-mining-margins_4_large.jpg" />

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Production Cost per Oz</p> </td> <td> <p>Gross Margin per Oz</p> </td> <td> <p>Average Realized Gold Price</p> </td> </tr> <tr> <td> <p>Barrick Gold Corporation</p> </td> <td> <p>$592.00</p> </td> <td> <p>$1,063.00</p> </td> <td> <p>$1,655.00</p> </td> </tr> <tr> <td> <p>Goldcorp Inc.</p> </td> <td> <p>$261.00</p> </td> <td> <p>$1,311.00</p> </td> <td> <p>$1,572.00</p> </td> </tr> <tr> <td> <p>Newmont Mining Corp</p> </td> <td> <p>$591.00</p> </td> <td> <p>$971.00</p> </td> <td> <p>$1,562.00</p> </td> </tr> <tr> <td> <p>AngloGold Ashanti Limited</p> </td> <td> <p>$728.00</p> </td> <td> <p>$844.00</p> </td> <td> <p>$1,572.00</p> </td> </tr> </tbody> </table>

We can see the most efficient firm of the group is Goldcorp, with the lowest production cost per Oz. AngloGold has the highest production cost per Oz and both Barrick and Newmont have approximately the same production cost per Oz. As AngloGold has the lowest margins in the group it has the lowest profit, even though it has nearly double the output of Goldcorp.

Interestingly Barrick Gold has the highest average realized price, this shows that Barrick, being the biggest producer is able to extract the best prices from its customers. 


Gold in its natural mineral content usually contains traces of silver. A gold nugget is usually 70-95% gold with the remainder mostly silver, there can also be traces of other metals such as copper and iron. This explains why these gold producers will usually produce more than just gold in their mines. This brings me on to my next point. What kind of reserves do these companies currently have available to them, without having to raise funds to buy more deposits?

Barrick Gold

As of December 31, 2011, Barrick’s proven and probable mineral reserves were 139.9 million ounces of gold, 1.07 billion ounces of silver contained within gold reserves and 12.7 billion pounds of copper.


As of December 31, 2011, Goldcorps’s proven and probable mineral reserves were 64.69 million ounces of gold, 1.177 billion ounces of silver, 5.4 billion pounds of copper, 6.16 billion pounds of lead, 14.77 billion lbs. of zinc

AngloGold Ashanti

As of December 31, 2011 AngloGold’s proven and probable mineral reserves were 75.6 million ounces of gold, the by-product Ore Reserve included 57,299t of uranium oxide from the South African operations, 408,348t of sulphuric acid from Brazil and 46.9Moz of silver from Argentina.

Newmont Mining Corp

As of December 31, 2011, Newmont’s proven and probable mineral reserves were 98.8 million ounces of gold and 9.7 billion ounces of silver.

So thats the introductions and summaries over with. Stay tuned for part 2, where I will take a look at the companies financial and valuation ratios.

Sources: www.barrick.com, www.anglogold.com, www.goldcorp.com, www.newmont.com/

RupertHargreav 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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