Gold has been one of the best investments over the past year. During that time frame, gold has traded between $1,317 and $1,923 per ounce. While that range comprises a 46% increase, gold has increased over 20% over the past twelve months, and now sits at $1,616 per troy ounce. Compare that to the S&P 500 (SPY) which has increased a relatively measly 3.5% over those same twelve months, with a significant chunk of that coming in a nascent 2012. Below, I analyze five key gold stocks to determine whether the shiny metal will continue to benefit these companies in winning ways. Please consider this analysis as a starting point for your own research.
Barrick Gold Corporation (ABX): Shares recently traded around $47, about the middle of its 52-week trading range of $42.50 to $55.95. At this price, Barrick has a market capitalization of $47 billion. Earnings per share for the past twelve months are $4.17. The current dividend of $0.60 per share yields 1.2%.
Of course, the main driver in the price of Barrick’s shares is the price of gold ore. Since gold has historically been considered a safe haven in times of economic turmoil, it’s not too surprising that gold has had such a stellar year. Barrick has experienced a nice 29.7% rate of revenue growth over the past year. Again, this can be directly linked to gold’s performance. The company does maintain very nice margins, with a gross margin of 60.11% and an operating margin of 46.20%. That performance is almost double that of competitor AngloGold Ashanti Ltd. (AU), which has grown revenues by 11.0% and has margins of 36.40% and 24.01% (gross vs. operating). If you want to play in the gold space, Barrick is a good choice. The company is finally expecting permitting at the Donlin Gold site, which is a massive project near Anchorage, Alaska. In a 50/50 venture with Nova-Gold, Barrick's share of the projected gold ore is 19.4 million ounces.
Newmont Mining Corporation (NEM): Shares recently traded around $62, at the higher end of its 52-week trading range of $50.05 to $72.42. The company’s market capitalization is $31 billion at this price. Over the past year, the company has reported earnings per share of $4.39, and pays a dividend of $1.40 per share to yield 2.30%.
Newmont Mining has margins in line with those of Barrick and Goldcorp (GG). Newmont’s gross margin is 62.47% and its operating margin is 41.84%. Barrick’s are 62.04% and 46.69% and Goldcorp’s are 63.12% and 42.53%. Newmont’s growth rate is substantially lower, though. Its year over year quarterly revenue growth rate is a minuscule 5.70%. The company’s yield is higher than that of either Barrick or Goldcorp. While the dividend adds to the interest of this stock, the minimal growth rate should be a concern. Investors should wait to see if the company can improve their growth rate before investing additional capital. Further research is warranted.
Newmont's most promising project, in my opinion, is the Conga Project in Peru, which is a copper-gold surface mining operation near Newmont's Yanacocha gold mine. Conga has 6.1 million ounces (estimated) and 1.7 billion pounds of copper in reserve.
Agnico-Eagle Mines, Ltd. (AEM): Shares were recently trading around $38, near the low end of its 52-week trading range of $34.50 to $76.49. The recent price equates to a market capitalization of $6 billion for the company. AEM has earned $0.70 per share for the past twelve months and pays a dividend of $0.62 per share for a yield of 1.50%.
Agnico has achieved solid margins over the past year. Its gross margin has come in at 53.22%, and the operating margin is 29.95%. Those margins are not as impressive as those of Barrick, as discussed above. Agnico’s revenue growth also lags that of Barrick, with a year over year quarterly revenue growth rate of 30.60% vs. Barrick’s comparable rate of 44.40%. Although Agnico provides a better dividend yield than Barrick, for the time being, more research is warranted.
The company has expected capital requirements at its Kittila mine, which could see 50% expansion to 4,500 tons per diem. Production at the higher rate would come in 2014, at which point this company could be a huge winner.
Kinross Gold Corporation (KGC): Shares recently traded near $12, close to the bottom of their 52-week trading range of $10.80 to $18.25. Kinross’ market capitalization is $14 billion based on this price. Earnings per share for the past year are $0.57, and the company pays a dividend of $0.12 per share, yielding 1%.
Kinross has been growing revenue at a similar rate to that of competitors Barrick and Goldcorp Inc. (GG). Kinross grew revenue at 41.80%, Barrick grew at 44.40%, and Goldcorp grew at 47.80%. Not surprising, though, is that Kinross also has a comparable gross margin of 59.39%. Barrick’s gross margin was 62.04% and Goldcorp’s was 63.12%. What is surprising is that Kinross has a much lower operating margin than both—31.39% vs. 46.69% and 42.53% for Barrick and Goldcorp, respectively. Considering Kinross also yields a lower dividend than Barrick and is line with that of Goldcorp, this stock, this stock warrants more research.
Going forward, Kinross' partnership with Millrock Resources will be key. Kinross can earn 55% through the joint venture for funding Millrock's exploration in western Alaska. The company has several other promising ventures with Laurential Goldfields, GoldenStar and Teryl Resources, which all have capable exploration abilities in Canada, Ghana and Alaska, respectively.
U.S. Gold Corporation (UXG): Shares were recently trading around $3.6, which is near the low end of their 52-week trading range of $2.93 to $9.87. This share price gives the company a market capitalization of $505 million. U.S. Gold has reported a loss of $0.40 per share over the past year. While U.S. Gold has no debt and $35 million in cash, the company does not currently pay a dividend.
Since U.S. Gold reported no revenue, there are no gross or operating margins to compare with those of its competitors. As such, we’ll have to look at some other figures to try to determine if it is worth your investment dollars. The company's cash figures works out to a little bit more than $0.24 for each of the 139.71 million shares outstanding. U.S. Gold also has negative cumulative retained earnings of $331.4 million. Considering the strength of its competitors such as Barrick (ABX) and Goldcorp (GG), there is no reason to chase such a speculative stock without doing further diligence.
Currently, U.S. Gold is is constructing and exploring the Gallo Complex in Sinaloa, Mexico. The company is generally on track for phase one of that production, which the company expects to average 30,000 ounces of gold per annum. The mining equipment for U.S. Gold arrived on December 9th, 2011, and ore is expected in the first quarter. In my opinion, drill results look decent, with a 15:1 ratio of silver to gold at the San Dimas and Palmarito discoveries. This company is a speculative play not for the faint of heart.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.