Statistically Speaking, This Is the Best Gold Miner. Period.

My name is Sean and I'm thoroughly addicted to making up my own valuation models. If there were stock valuation addiction meetings anywhere near me, my friends would probably suggest that I attend. Last year I introduced the world to the TMFUltraLong Overvaluation Index, or TMFULOI, and today I intend to introduce the world to the TMFUltraLong Gold Miners Index.

The quest for the perfect miner
Let me begin by stating that in my statistical analysis of the gold mining sector, there wasn't a lot of consistency in how one company reported its gold cash mining costs compared to the next. Certain gold miners are able to use mined byproducts to drive down cash costs while other miners have very few, if any, mined byproducts. Similarly, it was difficult in some cases to separate gold production year over year because some miners prefer to report their production in gold-equivalent ounces rather than simply stating that "we produced this much gold this quarter."

That aside, I wanted to approach from a statistical angle to determine which is the best gold miner. Period! We receive fantastic mining research on drill developments and political happenings on foreign soil from Foolish mining guru Christopher Barker on a regular basis, but I've yet to really see a side-by-side comparison of the core figures of the world's biggest gold miners. With that being said, I've undertaken the task of comparing the 12 largest gold companies by market value and rating them based on the data available in their most recent quarter.

The criteria
Of interest to me:

  • cash cost per ounce
  • gold production increase or decrease percentage
  • debt-to-equity ratio
  • forward P/E

These four metrics, I felt, would give me a pretty quick, yet in-depth, understanding of a company's margins, its ability to boost production without taking on exorbitant amounts of debt, as well as give me a peek at its relative value next to its peers. After perusing each individual earnings report, I assigned a corresponding figure of one (the lower, the better) for the best performer in a subcategory, a two for the second best performer, etc., down to the worst performer which received a 12. Upon rating each of the four subcategories, I tallied the results with the lowest score offering the best combination of high margins, production growth, low debt, and inexpensive value.

The results
Based on their most recent quarterly reports, here's how the figures played out:

Company

Cash Cost/Oz.

Production

Debt/ Equity

Forward P/E

AngloGold Ashanti (NYSE: AU  )

$737

(1.6%)

59.6%

7.4 

Barrick Gold (NYSE: ABX  )

$592

(7.7%)

50.2%

7.3 

Goldcorp (NYSE: GG  )

$220

0%

3.4%

13.3 

Newmont Mining (NYSE: NEM  )

$693

(5.3%)

37.1%

11.3 

Yamana Gold (NYSE: AUY  )

$201

11.2%

9.9%

12.3 

Kinross Gold (NYSE: KGC  )

$677

3.7%

20.4%

8.7 

Eldorado Gold (NYSE: EGO  )

$493

(13.7%)

1.6%

18.6 

Gold Fields (NYSE: GFI  )

$916

(5.9%)

34.9%

7.3 

Agnico-Eagle Mines (NYSE: AEM  )

$556

(7.9%)

24.0%

21.9 

New Gold (NYSEMKT: NGD  )

$443

15.7%

16.6%

13.8 

IAMGOLD (NYSE: IAG  )

$710

(7.7%)

16.9%

8.8 

AuRico Gold (NYSE: AUQ  )

$504

11.9%

12.8%

15.9 

Source: Morningstar, Yahoo! Finance, individual company 10-Q's, data current as of 1/1/2013.

As you can see here there are some clear standouts. Goldcorp and Yamana both benefited in a big way from byproducts which helped push cash costs near $200 per ounce. Goldcorp has been a leader in low-cost production for years, so this didn't surprise me much, but Yamana's $201 cash cost per ounce was an eye-opener.

Another interesting stat would be that only five of these 12 gold miners managed to boost production over the previous year (yes, I'm counting the 0.04% boost Goldcorp turned in). Big writedowns from Newmont Mining and Kinross Gold dragged down both EPS and the potential to boost production capability, while the closing of the Goldex Mine at Agnico-Eagle in 2011 continues to hamper its results.

In terms of debt, we shouldn't be shocked to discover that AngloGold Ashanti and Gold Fields, two miners heavily invested in South Africa, boast some of the highest debt loads relative to equity. None of these miners has a particularly worrisome amount of leverage, but I feel standouts like Goldcorp's 3.4%, Eldorado's 1.6%, or even Yamana's 9.9% shine.

Now let's have a look at how these 12 miners ranked according to my TMFUltraLong Gold Miners Index:

Company

Cash Cost/Oz.

Production %

Debt/Equity

Forward P/E

Cumulative Total

AngloGold Ashanti

11

6

12

3

32

Barrick Gold

7

9

11

1

28

Goldcorp

2

5

2

8

17

Newmont Mining

9

7

10

6

32

Yamana Gold

1

3

3

7

14

Kinross Gold

8

4

7

4

23

Eldorado Gold

4

12

1

11

28

Gold Fields

12

8

9

1

30

Agnico-Eagle Mines

6

11

8

12

37

New Gold

3

1

5

9

18

IAMGOLD

10

9

6

5

30

AuRico Gold

5

2

4

10

21

To be honest, I wasn't shocked to find Agnico-Eagle pulling up the rear of the pack given its forward P/E of nearly 22 and its production struggles. What actually surprised me was just how poorly some of the South African miners fared with my valuation method. Many of these miners, like Gold Fields for example, will wow investors with very low Forward P/E ratios, but they cover up high cash mining costs and weak production prospects in the region.

Goldcorp was another expected top-performer with its byproducts leading to low mining costs and its low debt levels placing it toward the top of the pack. Even so, Goldcorp only performed well enough to be the second-best gold miner according to my valuation index.

Based on the inaugural TMFUltraLong Gold Miners Index, Yamana Gold is the best gold miner, statistically speaking. Yamana, as Christopher Barker laid out in February last year, has increased its organic reserves at a steady pace in recent years, and consistently yields some of the lowest mining costs in the industry. Furthermore, even after its run higher, Yamana's forward P/E of just 12.3 when coupled with its fairly consistent double-digit production growth seems to suggest even better times could be ahead.

Can Yamana remain the best?
My goal will now be to update the TMFUltraLong Gold Miners Index once a quarter and see if Yamana can maintain its top spot.

Goldcorp is one of the leading players in the gold mining market. For the last several years, investors have been the beneficiaries of several successful acquisitions and strong organic growth. Goldcorp's low-cost production of one of the most sought-after metals in the world continues to make it an attractive choice for long-term investors. Click here for our detailed report to discover more about this mining specialist.


Read/Post Comments (3) | Recommend This Article (10)

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  • Report this Comment On January 03, 2013, at 1:09 PM, pondee619 wrote:

    I am more interested how Yamana's and Goldcorp's cost per ounce can be half of the next lowest on the chart. (201/220 to 443/493) And a quarter of that os the others. What are they doing diferently than the others and why aren't the others doing the same thing?

  • Report this Comment On January 03, 2013, at 1:35 PM, TMFUltraLong wrote:

    Pondee619,

    That's really the differentiation of having mines loaded with other byproducts like silver, copper, zinc, etc, which help drive down the cash cost of mining for their primary revenue generator, gold. Yamana and Goldcorp's mines are rich in these byproducts. Other, larger, miners don't have this luxury or their paying out their behinds to expand or open new pits.

    TMFUltraLong

  • Report this Comment On January 03, 2013, at 3:17 PM, Tsharp1947 wrote:

    Thanks for the analysis. In spite of recent weakness in GG, I love the stock and will be buying more. Its volatility makes covered call writing a great addition to the rather small monthly dividend and makes holding it long-term easier.

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