Gold's Price Just Spiked; Which Miner Will Profit?

It's not as easy as seeing who's bigger or who's got the lowest price.

Aug 9, 2014 at 10:54AM

Investors could have seen it coming. Exchange-traded funds that are backed by physical bullion were recording some of their best inflow gains since last year as the price of gold remained below the $1,300 per oz mark. With Russian troops massing on the Ukrainian border, Palestinians and Israelis lobbing rockets into and out of Gaza, the gains made by U.S. troops in Iraq falling apart, and a frothy stock market looking like it's poised for a significant correction at any moment, the idea that gold might be at an inflection seemed strong.


Gold is on fire. Source: Wikimedia Commons

The precious metal is up recently  hitting $1,309 per ounce and marking a 1.5% jump from its July 31 low. That puts it almost 7% higher from where it started the year, confounding the predictions many analysts made that gold would see additional weakness in 2014 after last year's poor performance. 

Those depressed prices certainly even caused a tumult among gold miners themselves who saw realized prices impact their financial results and led many to cut the value of their mineral reserves. Goldcorp (NYSE:GG) snipped its values from $1,350 an ounce to $1,300; Agnico-Eagle Mines (NYSE:AEM) went from $1,350 down to $1,200; and Kinross Gold (NYSE:KGC), which had already used an industry low of just $1,200 per ounce, slashed its reserved by a third as it added new costs to the way it calculated the figure. Barrick Gold (NYSE:ABX), however, used a particularly sharp axe, slashing its estimated value to just $1,000 from the $1,500 per ounce level it had set the year before.

Now the stock of gold miner's and the precious metal's price don't walk hand in hand, but the reserve value remains important because it determines what projects the miner believes it can operate economically. They set their reserve prices below gold's spot price to give themselves leeway in the event of volatility and allow for profits based on their costs of doing business.


Maybe all that's gold does glitter. Source:

Barrick had been the most aggressive in setting the bar so high following gold attaining the $1,900 peak, but now it seems to have gone to the other extreme by going so low as the pendulum swung back. Yet that new, lower price is also behind why the miner is shelving projects as it no longer deems them viable in the lower price environment.

So will the rising price environment be a boon for Barrick? It does create a bullish environment for miners, but don't jump to conclusions that just because a low bar has been set a miner can easily walk over it. There are a number of factors to consider, including a miner's debt levels (Barrick is heavily indebted) and its all-in sustaining costs, a relatively new metric for precious metals miners developed by the industry to better reflect the varying costs of production over a mine's life by incorporating costs related to sustaining production.

Screen Shot

*Estimated for 2014

While their ASIC tells us how efficient they can be at getting minerals out of the ground, the debt-to-EBITDA ratio gives us a sense of how flexible they can be in meeting the demands on their cash flows. All of these numbers have soared since last year as gold's price plunged.

On the surface Yamana Gold (NYSE:AUY) perhaps represents the biggest surprise in that while it maintains an industry-leading low-cost ability to operate, its debt levels have exploded. But if investors recall that was largely the result of its acquiring along with Agnico-Eagle the prized Canadian Malartic mine owned by Osisko Mining, an asset it was willing to engage in a bidding war with Goldcorp to capture, we can see that it remains a top choice for investors.

Gold's going up and that should benefit miners, if not directly, but not all miners are equal. Looking beneath the hood and seeing whether one can still maneuver will help in profiting from gold's coming rise amid increasing geopolitical turmoil.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information