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The Next Mother Lode of Gold

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Mother lodes are the stuff of legend. The Mount Morgan gold mine in Queensland, Australia, yielded yellow stuff for about 100 years. South Dakota's Homestake mine produced riches for more than 125 years. Geologists just don't seem to be finding lodes of that scale anymore, which simply heightens the significance of the larger mines still out there.

Newmont Mining (NYSE: NEM  ) exceeded production expectations for the third quarter at its notable mother lode: the Yanacocha mine. A joint venture with Peru's Buenaventura (NYSE: BVN  ) , this 27.5 million-ounce mine produced 225,000 ounces of gold in the third quarter, as a recent mill expansion bore golden fruit.

Elsewhere, Newmont is targeting a mid-2009 start-up for the Boddington mine in Western Australia with partner AngloGold Ashanti (NYSE: AU  ) . Sporting 11.1 million ounces of gold reserves and a billion pounds of copper to boot, Newmont sees Boddington as the "future cornerstone" of its Asia-Pacific operations. This will be Newmont's next mother lode, and Fools would do well to consider the bargain-basement prices for which a stake in that lode is available.

As Newmont reported earnings Wednesday that essentially matched analyst expectations, and reaffirmed its 2008 guidance, I wonder how many paused to consider that Newmont shares presently trade about $10 per share below their most recent five-year low. In October 2003, when gold traded for less than $400 per ounce, Newmont shares sold for almost $15 more than they do today. Of course, the cost of production per ounce of gold was also much lower then, compared with the $480 per ounce cost reported for the latest quarter.

This Fool has already offered 700 billion reasons why gold will ultimately move substantially higher. This week, both Newmont and Barrick Gold (NYSE: ABX  ) made the case even stronger. Both companies expressed a commitment to fiscal conservatism in light of economic uncertainty, and both indicated they may defer or delay some projects as a result. If the top dogs in gold mining begin delaying projects, especially with physical markets already tight, I believe the price of gold will go higher in the long run.

Newmont remains my favorite pick among the major miners, and at these prices, I perceive a substantial margin of safety. Still, I continue to favor the high-cash flow, low-cost kings of the intermediate miners, like Agnico-Eagle (NYSE: AEM  ) and Yamana Gold (NYSE: AUY  ) .

Further Foolishness:

Gold is a hot topic on the blogs at Motley Fool CAPS. Join the free service today and see just how many Fools are taking the long view when it comes to investing in gold. The "Gold" tag at Motley Fool CAPS lists 85 companies, and you'll find Christopher's comments on most of them.

Fool contributor Christopher Barker captains yachts and writes about stocks. He can also be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Agnico-Eagle, Buenaventura, and Yamana Gold. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (14)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 07, 2008, at 6:01 PM, andrelon wrote:

    Gold is great times.

    But food is better..because we must eat all the time, every day.

    Think of China.

    1.3 BILLION people and population growing everyday

    The Chinese have always been fond of pork, so the market

    is really huge for well run pork suppliers.

    There must be several, but I know of two

    solid companies ( both recommended bij FOOLS

    several times of late).

    FEED and HOGS

    Check impressive sales and profit growth.

    EPS 2008 well under 10.

    For 2009 getting closer to 5x

    Both companies work in different provinces but

    still scatching the potential..

    Pork business in China: a golden future!


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10/21/2016 4:02 PM
NEM $36.35 Down -0.66 -1.78%
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