Over the last several years, the large gold mining companies have produced revenue gains on the back of higher gold prices and not much in the way of mining more ounces of gold. If the price of gold keeps going up, that approach works. However, if the price of gold stabilizes for a while - several years - investors might be more interested in mining companies which can increase revenues and profits without the assistance of higher gold prices.
Here are five gold mining companies with strong prospects for higher production results in 2012 and into future years. Note that four of the five companies are ADRs trading on the U.S. exchanges. Forecast earnings estimates for these companies are from the specific company pages of adr.com.
Compania de Minas Buenaventura SA (BVN) is located in Peru, owns several gold mines outright, and is partial owner of several other mines in Peru, including 44% of Yanacocha - Latin America's largest gold mine. The company also owns the world's fourth largest silver mine and produces a significant amount of the silver metal. Compania de Minas Buenaventura has a current market cap of $11.7 billion and trades at 12.5 times 2011 earnings. The average earnings estimate forecasts net income growing by about 10% in 2012. This stock is also popular with investors and is one of the few larger cap gold mining companies with a share price gain so far in 2012. It is always good to own a stock going up in value.
Yamana Gold (AUY) is a Canadian company with gold mines in Brazil, Chile, Argentina and Mexico. The company has a current market cap of $10.8 billion and a trailing P/E of 15. While many gold companies are maintaining stable production levels and growing revenues through increasing gold prices, Yamana Gold is on a path to significantly increase production. Ounces produced are forecast to increase by at least 10% in 2012 and the stated corporate goal is a 60% production increase from 2011 to 2014. This is the gold miner for the investor looking to mate a growth stock with a precious metals stock.
Randgold Resources (GOLD) is a South African mining company with four mines in the Ivory Coast and one in the Congo. The company has a market cap of $8 billion and a trailing earnings ratio of 21. Rangold Resources appears to have turned a corner in 2011, with gold production increasing by 58% and net income per share up by more than 250%. The earnings estimates for Randgold Resources forecast earnings growth of about 50% in 2012. The company forecasts a 19% production increase for 2012 and is on a 5-year growth plan.
Another strong performer is Gold Fields Limited (GFI), a company from South Africa that provides an interesting combination of potential growth and an attractive dividend. The company has a current market cap of $9.2 billion and a trailing P/E ratio of 10. In 2011, Gold Fields Limited generated about half of its gold production in South Africa and the balance was evenly split between West Africa, South America and Australia. The company produced 3.5 million ounces of gold in 2011 and has published a goal of 5 million ounces in 2015. The average earnings forecast from adr.com predicts earnings per share will increase to 1.84 in 2012, up almost 50% from $1.26 in 2011. The dividend policy from Gold Fields is to pay approximately half of earnings out as dividends, putting this stock as one of the better yielding gold mining companies.
Next I will look at AngloGold Ashanti Limited (AU), which is a South African gold mining company with operations in East Africa, the U.S., several South American countries and Australia as well as in South Africa. The company has a $12.9 billion market cap and trades at 10 times the 2011 adjusted headline earnings. The increase in the price of gold has been especially beneficial for AngloGold Ashanti, with results going from a posted loss in 2009 to a $1.3 billion profit for 2011.
The company generates about 80% of EBITDA earnings from the African operations. Investors familiar with gold mining financials will note that the company has a pretty high cash cost to produce and ounce of gold - about $800 per ounce - which is significantly higher than for the North American mining companies. The higher cost actually leverages any increased in the price of gold. In 2011, the average price of gold was up 28% and AngloGold Ashanti posted net income and free cash flow increases of about 60%.
These gold mining company stocks provide several advantages over investing directly in gold or through one of the gold bullion ETFs. These companies are all on a path of significantly mining larger amounts of gold each year. At the current high price for gold, the increased production will lead to significant improvements in net profits and the share price gains should handily exceed any gains in the price of gold. Also, the mines owned by the listed companies are internationally and geographically. The mines owned by the five mining companies are some of the most productive in the world, providing long-term asset bases for future production and growth.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.