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In my previous posts here and here, I compared the 12 most important gold miners whose stocks trade on the US markets, focusing on the total cash costs of producing gold and the gold reserves of each one of these companies: Barrick Gold (NYSE:ABX), Newmont Mining (NYSE:NEM), Gold Fields (NYSE:GFI), Kinross Gold (NYSE:KGC), Goldcorp (NYSE:GG), Yamana Gold (NYSE:AUY), Agnico-Eagle Mines (NYSE:AEM), IAMGold (NYSE:IAG), Randgold Resources (NASDAQ:GOLD), New Gold (NYSEMKT:NGD), Golden Star Resources (NYSEMKT:GSS) and AuRico Gold (NYSE:AUQ).

In this article I will compare these companies with regard to the three important fundamental parameters: Gross Profit Margin, Profit Margin and Return on Equity.

In order to have a clear idea about the gold production parameters of the 12 companies, the table below presents the gold production in 2011, the Proven and Probable Gold Reserves at the end of 2011, and the total cash costs for the first six months of 2012.

Gross Profit Margin

Gross profit margin is the difference between total sales revenue and the direct costs associated with producing the goods sold by a company and divided by revenue. Gross margin is important because it reflects the core profitability of a company before overhead costs. A company that obtains a higher gross profit margin than its competitors and the rest of the industry is more efficient.

The chart below presents the average gross profit margin over the last four quarters for each one of the twelve gold companies.

Source: YCharts Chart: Arie Goren

The chart clearly shows that the highest gross profit margin is found among the smaller gold producers; Yamana Gold had the highest margin of 65.7%, Randgold Resources had the second highest margin of 64.4%, and Golden Star Resources, the smallest producer, had the third highest margin of 64.3%. Among the big gold producers, Newmont Mining had a gross margin of 57.0%, and Barrick Gold had a gross margin of 51.6%.

Profit Margin

Profit margin represents the percent of total revenue that a company keeps as profit after accounting for all other costs, variable and fixed, and it is calculated dividing net profits by sales. The profit margin can be used to compare the profitability of companies within the same industry and to compare a company's profitability to its past performance.

The chart below presents the average profit margin over the last four quarters for each one of the twelve gold companies.

Source: YCharts Chart: Arie Goren

The chart clearly shows that the highest profit margin is found among the smaller gold producers; AuRico Gold, the smallest producer among the twelve gold companies, had the highest profit margin of 38%, Randgold Resources had the second highest profit margin of 35%, and Goldcorp had the third highest profit margin of 28%. Among the big gold producers, Barrick Gold had a profit margin of 27.6% and Gold Fields had a profit margin of 18.3%. Agnico-Eagle Mines and Kinross Gold had a negative average profit margin; Agnico-Eagle Mines due to -133.80% profit margin in 4Q 2011, and Kinross Gold due to -293.20% margin in the same quarter.

Return on Equity

Return on equity is the amount of net income returned as a percentage of shareholders' equity, and it is calculated dividing net profits by shareholder equity. Return on equity demonstrates a company's ability to generate profits from shareholders' equity (assets minus liabilities).

The chart below presents the average return on equity over the last four quarters for each one of the twelve gold companies.

Source: YCharts Chart: Arie Goren

In the case of the return on equity, the two biggest gold producers, Barrick Gold and Newmont Mining, are among the companies with the highest return on equity; Newmont Mining with ROE of 32.4%, and Barrick Gold with ROE of 18.5%. Three companies - Golden Star Resources, Kinross Gold and Agnico-Eagle Mines - had a negative average return on equity over the last four quarters.

Summary

Although Barrick Gold was ranked only 8th on gross profit margin, 4th on profit margin and 3rd on return on equity, it is still my favorite due to its low total cash costs, its leading production capacity and its largest total gold reserves. Randgold Resources, which ranked 2nd on gross profit margin, 2nd on profit margin and 4th on return on equity, is also a good choice. Another interesting option is the smallest producer, AuRico Gold, which ranked 3rd on gross profit margin, 1st on profit margin and 6th on return on equity.

Source: Which Is The Best Gold Company? Part 3