Statistically Speaking, This Is the Best Gold Miner

Following one of the ugliest years in more than a decade for the lustrous yellow metal, spot gold prices are once again beginning to make a comeback.

I would propose there are a number of reasons behind the recent rally in gold, which pushed price as high as $1,392.60 in March from a low of $1,181.40 in late December.

To begin with, gold is often viewed as a hedge against market volatility and uncertainty. With the Nasdaq Composite getting absolutely creamed of late and momentum stocks being hit, gold has suddenly curried some favor among buyers.

Second, ongoing political tensions between Russia and Ukraine (as well as the rest of the world) creates doubt that the ongoing global economic recovery can continue. Russia's ability to import and export goods is vital to the ongoing improvement in the global economy. Any disruption to that end could lower GDP growth rates in a number of countries, making gold an intriguing safe-haven investment.

Lastly, forecasts are calling for gold demand to rise over the coming years. According to the World Gold Council, China's demand for gold could rise 20% to 1,350 tons by 2017 as its rapidly emerging middle class begins to demand luxury goods like jewelry and investments such as gold coins. We often forget that precious metals like gold can be driven by simple supply and demand -- and the demand side of the equation looks healthy over the long term.

Source: Giorgio Monteforti, Flickr

The metrics behind the market's largest gold miners
With that being said, there could be some very attractive valuations within the gold-mining sector. Of course, we need to understand that not all gold miners are created equally. That's why I'm again going to lean on a number of statistical criteria I established in January 2013 to determine what gold miner really is the best, statistically speaking.

As a refresher, I plan to focus on four criteria to help evaluate and differentiate the 10 largest gold miners from one another. These are:

• Cash cost per ounce
• Gold production increase or decrease
• Debt-to-equity ratio
• Forward P/E

Cash costs are obviously important because uncontrollable expenses won't lead to profitability, especially with gold prices well off their highs. Therefore, a miners' ability to control costs and/or abate them with by-product sales is paramount to success.

Source: G =], Flickr

Secondly, I want to see gold production growth. It wouldn't be too uncommon to see tepid growth in this environment with capital expenditures and spot prices lower than a year ago, but those miners that are poised to expand production are the ones most likely to succeed.

Third, we're going to focus on debt. Most miners are going to have to go into debt in order to fund exploration, the future expansion of existing mines, purchase mining equipment, and perhaps even hire new employees. What I want to see is as low a rate of debt relative to equity as possible, because miners with lower debt-to-equity ratios are going to have more flexibility to make deals and possibly expand their operations.

Lastly, we're going to take a look at forward P/E since it's not about where a stock has been, but where it's headed next. Investors are intent on seeking out deep value stocks and we're going to determine if any lie within the gold mining sector.

The results
Now, let's have a look at the results. A few things to consider as you examine the results below, they are from each company's latest quarterly filing, they don't include royalty interest companies, such as Royal Gold, and they may be based on gold equivalent ounces produced.

Sources: Individual quarterly reports, Yahoo! Finance, data as of market close 04/15/2014

As you can see, this isn't as cut and dried as when we did this a little over a year ago with falling gold prices and big writedowns complicating things for a number of miners.

As it relates to cash costs, New Gold (NGD) reigns supreme with a $316 total cash cost per ounce. New Gold, the smallest gold miner of the 10 by market value, relied on higher co-product production, such as silver and copper, to help offset gold mining costs, and also worked diligently on lower its operating expenses. Previous champ, Yamana Gold (AUY), gets an honorable mention here as well for its $417 cash costs per ounce figure, which was also offset by the production of silver.

In terms of production, only five of the 10 largest gold miners delivered an increase in their latest quarter over the prior year. None delivered a stronger gain than Agnico-Eagle Mines (AEM 0.58%), where gold production soared 36%. The attributable factor here was the beginning of commercial production at its Goldex and La India mines, as well as a big surge in production (46,195 oz. more in Q4 2013 than Q4 2012) in its Meadowbank mine.

In terms of debt to equity, we want a figure that's as low as possible -- and that title belongs to Eldorado Gold (EGO 0.94%). As I said earlier, utilizing debt to fund mine build-outs and expansion is nothing new in the mining sector, but Eldorado is a true rarity in that it was net cash positive $628.3 million in cash and cash equivalents and $601.4 million in debt -- as of the latest quarter. This solid financial footing gives it more flexibility than some of its peers which will be beneficial if gold prices continue to head higher.

Finally, on a forward-earnings basis there is no company cheaper than Gold Fields (GFI -0.68%), which operates mines in South Africa, Peru, Ghana, and Australia. At just 12 times forward earnings it trades well below the high teens average of the group above, but that very well could have to do with investors factoring in the company's high cash costs per ounce for gold production.

The best gold miner, statistically speaking
Now that we've seen who's leading each category, let's break each down from best to worst and decipher which gold miner is the best of all, statistically speaking.

Sources: Individual quarterly reports, Yahoo! Finance, author's calculations

I hate to be the bearer of unsurprising news folks, but the previous king of the gold miners, Yamana Gold, is once again your tippy-top choice in the sector, speaking strictly from statistics.

Despite seeing its production rank in the lower half of the group with a 6% drop in the latest quarter, it has among the lowest debt-to-equity ratios, the second-lowest cash costs per ounce thanks to its byproduct production, and it's priced attractively at less than 18 times forward earnings.

Coming in a very close second was Goldcorp, which is a model of consistency with a manageable debt level, reasonably low cash production costs, and nearly 10% year-over-year increase in production in the fourth quarter.

On the flipside, gold miners that have dealt with massive writedowns are clearly the ones to avoid, such as Kinross Gold, Barrick Gold, and Newmont Mining, which had the worst cumulative scores of the group. The high costs of building out prospective mines is tying the hands of these larger miners that invested heavily in permits and acreage over the past decade and are now required to wait for better times before they boost capital expenditures.