Gold's major miners are majorly busy positioning themselves to sustain coveted production growth momentum through the remaining phases of gold's powerful secular bull market; and in that primary task most of them face a daunting uphill battle.
Gold's emperor demands more copper
It would be all too easy to interpret Barrick Gold's (NYSE: ABX ) surprising $7.7 billion all-cash bid for African copper assets as a surrender flag to the difficulty in locating quality large-scale gold assets at a favorable price; but Barrick avows the move simply reflects the rarity of investment opportunities in copper matching the caliber and scale of Equinox Minerals. The target's flagship is the Lumwana mine in Zambia, which produced 323 million pounds of copper in 2010 at a competitive cost of $1.38 per pound.
Equinox's principal development asset -- the Jabal Sayid project -- is in Saudi Arabia and already hosts 1.2 billion pounds of copper reserves with expectations of strong regional exploration potential. Given the dynamic political landscape within the broader region, I ascribe a slightly elevated jurisdictional risk profile to Jabal Sayid, but to some degree a miner of Barrick's scale must follow the geology where it leads.
All told, Equinox lays claim to 5.7 billion pounds of copper in reserves, plus 5.5 billion more pounds in the inferred resource category. The acquisition would immediately double Barrick's copper output to some 600,000 pounds annually, with Jabal Sayid slated to add a further 100,000 pounds per year after production begins in 2012. On a pro forma basis, Barrick's proportion of revenue derived from gold production -- at about 80% -- would roughly equal that of relatively copper-heavy gold miner Newmont Mining (NYSE: NEM ) .
I won't blast Barrick for targeting an easy doubling of its copper production capacity, especially given my staunchly bullish long-term outlook for the red metal, but nor am I able to overlook the fact that CEO Aaron Regent -- arguably one of the best-positioned individuals in the world to opine on the subject -- believes we have passed the planet's "peak gold" rubicon. Barrick's existing development pipeline will usher its capacity to 9 million ounces annually by 2015, but merely sustaining that mark over time require a consistent and aggressive stream of acquisitions that has perhaps just been hindered by this $7.7 billion foray into copper. I suppose only time will tell.
Barrick's rival raises the bar
I had no idea Newmont Mining was such an avid reader of The Motley Fool, but mere weeks after this article appeared decrying the comparatively sluggish nature of Newmont's production growth outlook, the miner announced a targeted 32% growth spurt (from up to 5.3 million ounces in 2011 to 7 million ounces by 2017). OK, so maybe my article wasn't the precise impetus, but either way this clarified strategic outlook comes as a very welcome development for Newmont shareholders. I suspect that a comprehensive assessment of Newmont's recently acquired Fronteer Gold assets played a key role in supporting this ambitious target. Newmont also raised the bar for dividend payers in the gold space by linking its future payouts directly to the price of gold, and announced a second quarter payment of $0.20 per share for a peer-leading annualized yield.
Newmont reported first-quarter earnings last week of $513 million, accompanied by record operating cash flow that approached the $1 billion mark. Despite flat gold production, and a sharp 37% drop in copper output, Newmont carried a 10% revenue boost to a 25% improvement of per-share profit. Given the trajectory of oil prices, Fools will properly have been on the lookout for rising costs among gold miners, but in Newmont's case an array of operational hiccups combined with that sharp drop in copper byproduct accounted for a major portion of the company's drastically higher cost of production. From an impressive net cost of just $195 per ounce of gold achieved in the third quarter of 2010, Newmont saw its costs skyrocket by 125% over the next two quarters to average $438 for the first quarter of 2011.
All these moves often produce little movement
For all the moving and shaking evident in the efforts of major gold miners to secure additional reserves and build-out their long-term production pipelines, investors in large-cap gold stocks are seldom treated to commensurate movement in the shares. Despite gold's recent push above $1,500 per ounce, shares of major miners Barrick, Newmont, and Gold Fields (NYSE: GFI ) all remain in negative territory year-to-date. By far my favorite investment option among the majors, Goldcorp (NYSE: GG ) stands out as the clear momentum leader with a 20% run already this year. Goldcorp has shown its mettle as a master of acquisitions, provided a clear path to 60% production growth over five years, and sports some of the most compelling organic growth potential in the industry. To remain vigilant of important trends in the industry, I pay close attention to all the major miners. But when it comes to investing in that particular segment of the market, there really is just no match for Goldcorp.
I consider climbing down the production-scale ladder, meanwhile, the best means for Fools to extract maximum gains from sustained long-term upward momentum in gold prices. Gammon Gold (NYSE: GRS ) , which I offered as my top stock pick for 2011, is outpacing the competition with a 30% gain thus far. As the company integrates its recently acquired El Chanante gold mine and ramps up output from the previously halted El Cubo mine, I expect Gammon to live up to my lofty expectations. New Gold (AMEX: NGD ) scored an attractive acquisition of its own a few weeks ago to add 3.8 million ounces of gold resources to its growing precious hoard. Finally, a few rungs further down the ladder, junior producer Claude Resources (AMEX: CGR ) warrants Foolish consideration following the recent addition of 921,000 indicated gold-equivalent ounces at the company's exciting Amisk gold project in Manitoba, Canada.
Whichever rung of the gold production ladder you decide to stand upon, stand strong. As I have been repeating for years, one will encounter swift and jarring corrections en route to golden gains. For the disciplined Fool with a well devised strategy in play, I believe that successive stages of this bull market will unlock some epic returns as their just reward for patient determination.