Gold is considered by investors to be an international monetary asset that offers protection in the case of a major disruption. Its real value tends to increase during times of crisis. It is generally considered a "safe haven" when there is financial uncertainty. Many believe that gold, despite a recent decrease in value, will appreciate during the latter half of 2012 and into 2013. The thought behind this can be tied to an expected recession in Europe, slow growth, continuously low interest rates in the U.S., and a general consensus of uncertainty globally.
If uncertainty continues, gold may very well increase in value. SPDR Gold Trust (GLD) is an ETF that directly tracks the price of gold. It holds gold bullion. However, investors may want to profit from more than just price appreciation. Aside from the price of gold, gold miners can become more profitable if they can cut costs of production. They also can pay dividends. The following contains information on gold mining stocks and an ETF that holds mining stocks.
Goldcorp, Inc. (GG): In 2011, GG had a record gold production of 2.51 million ounces at an estimated cost of approximately $220 per ounce. GG estimates gold production of 2.6 million ounces in 2012. This estimate is driven by an assumption of another strong year throughout their portfolio. Also, its recent Pueblo Viejo joint venture with the Dominican Republic is expected to average an increased production of 415,000 to 450,000 ounces of gold per year for the next five years. Additionally, GG has six new mines in the project pipeline to take place over the next five years. Of the $1.8 billion in 2011 projected capital expenditures, half can be attributed to projects. Approximately 30% of the project capital expenditures are budgeted for the completion of Pueblo Viejo. In aggregate, these projects are expected to provoke a 60% increase in gold production during the period. Gold production is forecast to grow to 4.2 million ounces in 2016. GG will pay a monthly dividend of $0.045, payable on 1/27/12. This is a percentage of its recent stock price of $45.62 and works out to about 1.18% annualized.
Newmont Mining Corp. (NEM): Management reports that NEM realized record sales of $2,744 for the third quarter of 2011 and $7,593 million for the first nine months of 2011. It also realized record net cash from continuing operations of $2,666 million for the first nine months of 2011. NEM has current plans to develop assets that will increase its annual gold production to approximately 7 million ounces by 2017. This projection represents an approximate 35% anticipated 2017 aggregate increase in annual production from its previously announced 2011 attributable gold production outlook of 5.1 to 5.3 million ounces.
Because many thought that miners have been hoarding cash at the expense of their investors, NEM was the first to offer gold-linked dividends. Because of this new dividend policy, it has the potential to increase its annual dividend to $4.70 per share. However, this number may seem farfetched. The dividend will only be this high if NEM has an average realized gold price exceeding $2,500 per ounce. Being that the price is hovering around $1,600 per ounce, the projection is questionable.
Randgold Resources Limited (GOLD): GOLD's stock price increased by 35.7% from last year and displays exceptional fundamental performance. It was able to report a 342% increase in EPS for the third quarter of 2011, year-over-year. Also, the average EPS growth for the last three quarters is 225%. There were three consecutive quarters of EPS acceleration and the most current quarter's EPS is 413% above the EPS from the same quarter one year ago. 2011's third-quarter production rose 80% to 182,362 ounces.
There are minor setbacks that must be considered. Some gold shipments were recently delayed in West Africa. Furthermore, GOLD downgraded its earnings outlook due to issues arising from bad weather, labor and power supply.
Despite the minor disruptions, GOLD has been recognizing enormous growth in earnings and sales. This alone should weather any price depreciation in gold over the next few months.
Yamana Gold, Inc. (AUY): In 2011, AUY produced 1.1 million gold-equivalent ounces (GEOs) at a by-product cost of just $50 per ounce. A nearly 60% increase in output is expected in three years. AUY is expected to produce between 1.2 and 1.3 million GEOs in 2012. Mine discovery and mine expansion contributes to its expected 2014 sustainable run-rate of 1.75 million GEOs. The addition of four new gold mines in Mexico and Brazil may be the catalysts for future share-price appreciation. AUY is leading in cost structure. Although it is spending significant resources on expansion, it may prove to be one of the most profitable mining stocks. Furthermore, its expansion will likely lead to future competitive advantage.
Market Vectors Gold Miners ETF (GDX): This ETF attempts to replicate the price and yield performance of the NYSE Arca Gold Miners Index. At least 80% of the fund's assets are generally in common stocks and American depository receipts of companies that are involved in the gold mining industry. GG, NEM, and GOLD are among the top 10 holdings. Last year, GDX got sold off alongside other stocks while the precious metal that its holdings produce rose 10%. This ETF is more susceptible to the price of gold than the individual mining companies, and it owns some of the most discounted metals stocks I could find. They can compete in efficiency and in overall production capacity. GDX will benefit from those that achieve competitive advantage within its holdings but also concurrently be hurt by those that lose because of this competition. The winners and losers essentially cancel each other out and price yet again becomes the main factor.