But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
Why all is not well for gold miners like Barrick and Kinross
With the great gold price fall of 2013, stocks like Goldcorp Inc. (GG), Barrick Gold Corp. (ABX), Newmont Mining Corporation (NEM), and Kinross (KGC) were down from their peaks in 2012.
Investors interested in gold face two main options. They can either invest in physical gold or ETFs that track gold prices or they can invest in gold stocks.
Having discussed the net asset value approach, we’ll now discuss multiples-based valuation methods that you can also use to value gold mining stocks.
The method used to value a mining company depends on the stage in the mining life cycle the company’s currently in. For early-stage companies, since the reserve life and grade et cetera aren’t known, the ideal way would be to use the relative multiples for the comparable companies.
The junior mining space is very risky, given very limited options in terms of mines and their involvement in early stages. So it’s very important to identify the right junior stock.
There are two dominant gold mining ETFs in the marketplace right now, the Gold Miners ETF (GDX) and the Junior Gold Miners ETF (GDXJ). The question you might be wondering is which one of the two would be better to own at this stage.
How much more gearing a particular company can handle without damaging its value to shareholders depends on its current financial standing and future growth prospects. We’ll now look at how North American gold majors are doing on the financial leverage front.
Companies with high reserves and high recovery rates produce at higher rates. Investors should look out for these companies. This has implications beyond just volumes.
Gold mine economics for companies like Goldcorp Inc. (GG), Barrick Gold Corp. (ABX), Newmont Mining Corporation (NEM), and Kinross (KGC) depend on many controllable and uncontrollable factors. We’ll discuss some of the controllable factors over this article and the next article in this series.
It’s important to understand GEO or gold equivalent ounces because gold companies like Goldcorp (GG), Barrick Gold (ABX), Newmont Mining (NEM), and Kinross (KGC), measure their production and reserves in different ways. You need to make sure you’re comparing apples to apples.
Gold mining companies like Goldcorp Inc. (GG), Barrick Gold Corp. (ABX), and Newmont Mining Inc. (NEM) report cash costs, total cash costs, total costs, and all-in cash costs. It can be very confusing for investors to understand exactly what’s what here.
In the gold industry, substantial discrepancies exist between the actual costs incurred and the costs reported by the companies. In this part, we’ll discuss different methodologies and how effective they are at representing a company’s true costs.
Costs are one of the most important metrics to look at for gold mining companies. We’ll discuss each cost category for a company and what it includes.
China is the largest gold producer in the world, accounting for 14% of total production. East Asia as a whole produces 21% of the total newly mined gold. Latin America produces around 18% of the total.
Gold has emotional, cultural, and financial value that supports its demand across generations. We’ll now discuss the key demand categories for gold, as defined by the World Gold Council (or WGC).
After ore is extracted by one of the two methods, as we discussed in the last part of this series, by gold companies, it goes on to be further processed and ultimately sold. We’ll now discuss these processes in detail.
A company’s choice of mining method is determined by the characteristics of each gold deposit. Based on these characteristics, there are mainly two kinds of mines—open-pit and underground.
We’ll now briefly discuss senior gold miners’ reserves, location of assets, and cost metrics. The Gold Miners Index (GDX) invests in all the above stocks. The SPDR Gold Shares (GLD) is also a good way of playing physical spot gold.
The life cycle of a mine tells investors about the distinct phases involved in successful mine development. It typically takes 10–15 years from the time when geologists start to prospect in a location through to the first production from a gold mine.
Gold is an unusual metal. It exists in the Earth’s crust as an element. It’s not chemically combined with other metals. Silver and copper are the only other metals naturally found in their elemental form.