It's been an interesting year for gold, with a declining market somehow creating high revenue for gold mining companies. As global and local economies bounce around, some gold stocks have managed to do well, while others are barely staying afloat.
Below, I present five gold mining companies that are involved or soon to be involved in feasibility studies for new projects. I believe that two of these stand at the top of their game, due to smart expansion practices as well as consolidation of relationships with partners. In comparison, two other companies have been slow to adapt, resulting in mistakes that trapped them in a narrow focus when the market for jewelry gold dropped by 10% last year.
With predictions stating that the gold market is going to improve this year in areas like India, the future depends largely on how flexible these companies can be, which is why I'm also going to discuss a company that has been confusing for some investors, but which I believe has exactly the kind of flexibility that gold will require in the coming year.
Strong Gold Stocks
Randgold Resources Limited (GOLD) has been on the rise or at least ten years, with a few tips and turns along the way. Gold mining operations in Mali and elsewhere in Africa are expanding continually and the political upheavals contributed to by its presence do not seem to be negatively affecting profits.
This company is a major player in mines in that region, with up to 89% ownership in some operations. With investments growing in capital projects, Randgold still managed to boost its cash by 33% over 2010 amounts.
This and other successes announced in the 2011 fourth quarter report have led the company to project a 100% increase in dividends. I don't find this projection surprising, considering profits rose 259% to $433.4 million last year.
Randgold continues to exchange permits with other companies like Canadian Volta Resources Inc. (TSX: VTR.TO) in order to foster positive relations in the regions where it works, as well as to maximize profits for its shareholders by discovering new sources and markets for its products.
With a consistent focus on African gold mining development, Randgold seems to be delivering the type of sustainable growth patterns coveted by many businesses. Unless something unexpected comes out of left field, I believe that this company continues to be a strong investment opportunity.
Newmont Mining Corporation (NEM) had a bit of a rough period around the turn of the millennium, but that's ancient history now. Since then, its stock has remained strong with an overall upward trend. Though not quite as valuable as Randgold, Newmont's price fluctuations have followed a very similar pattern.
It took a small hit on February 16th, but recovered again the next day. With gold prices on the rise, the poor market conditions for gold have not negatively affected companies as much as you might expect. Due to the economic recession, consumers have been buying less jewelry, which makes up a large portion of gold sales for companies like Newmont.
IBISWorld research predicts that gold prices will drop again once the economy picks up, but with merger discussions in the works around the world and mining operations expanding, higher production rates are bound to increase supply to meet the growing demand.
Central banks are printing more money from China to the EU, which boosts the value of gold investment in large players like Newmont, which currently has a market value of almost $30 billion. I expect this stock to show consistent upward momentum going forward.
Weak Gold Stocks
Agnico-Eagle Mines Limited (AEM) doesn't seem to have a lot to offer right now, in my opinion. Its fourth quarter report revealed the stagnation of its operations, in spite of the recent acquisition of La India and Tarachi in Mexico.
With a stated goal of expanding operations at current mines, the company doesn't look like it is really going anywhere, and I think now would be a good time for investors to divest themselves of shares that risk turning into deadweight not too far down the road.
Kittila and Meliadine have remained the company's focus, and although these mines tend to yield high production value, eventually they are going to run out. Agnico-Eagle appears to be ignoring this fact, since it shows no sign of seriously branching out into new areas.
Over the past year, we've seen a steady decline in stock value, with shares dropping by three dollars in the first half of February alone. While this drop might be relatively insignificant, it represents the larger trend, which to me indicates that Agnico will not offer great returns on investments, unless someone in the company can come up with a good idea - or any idea - for growth.
Northern Dynasty Minerals, Ltd. (NAK) investors seem to be more hopeful than they should be these days, in my opinion. With EPS currently at $ -0.21, Northern Dynasty's value has been dropping since at least the beginning of last year.
This is not to say that the company hasn't yielded some nice payouts recently, but overall its prospects do not look very promising to me. Its only real hope right now is the Alaskan Pebble gold-and-copper deposit under development by the Pebble Ltd. Partnership.
Northern Dynasty is a 50% owner in the partnership, so if it works out, I could see how the company might turn its luck around. On the other hand, if this project fails or even if it doesn't do as well as expected, the partnership will have lost a lot of money to it. Over the past seven years, the project swallowed $150 million for environmental impact analysis alone.
In December last year, shares began selling at oversold prices, and they are currently selling at a measly $7 at the time of writing. Compared with Randgold and Newmont, selling at around $111 and almost $60, respectively, this amount doesn't inspire confidence in me for Northern Dynasty's future viability.
On the Fence
NewGold, Inc.: (NGD) has been doing well this month, although I wouldn't say it will be as lucrative or as predictable as my two best gold stocks candidates listed above. The company's overall trend has been upward since 2009, but a closer look reveals that it has been a somewhat tumultuous ride.
Even the holiday season last year didn't treat this company overly well, probably due to the penny-pinching and lack of spending on luxury items like jewelry that I mentioned above. January and February have been a bit better generally speaking, but the brief hike in value was followed by a slow drop.
At the same time, NewGold's 2011 report indicates a 25% increase in gold resources per share, with a 6% rise in gold sales over the previous year. So it seems to me like they are doing reasonably well.
With a feasibility study in progress for the El Morro mine in Chile, as well as continued strong production in Australia, the company appears to be taking advantage of stability as well as exploration, which shows intelligent management, in my opinion.
Just as investors shouldn't put all their money in one spot, companies stand to benefit from a similar tactic. But without the security to back up new projects, NewGold risks pushing its limits too far, which I believe could cause its finances to implode.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.