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What Would You Pay for This Treasure?

Christopher Barker
August 6, 2010

This is not a trick question.

What would you pay for $70 billion worth of buried treasure? What if that treasure was spread about in pockets across two continents?

Given the substantial costs and logistical headaches you would incur to recover the loot, you're going to demand a discount, but how much of a discount?

These are the sorts of questions that investors researching mining stocks must ask themselves routinely. Assessing valuations in the industry is tricky business: part finance, part geology, part risk-management, part trend-forecasting, and part, well, art.

But you don't have to be a maestro to spot the sweet combination of deep value and solid growth prospects built into the shares of Yamana Gold (NYSE: AUY  ) . Maintaining the honor of the industry's lowest production cost -- at just $103 per gold-equivalent-ounce (GEO) for the second quarter -- Yamana's gross margin led the bonanza parade with an astonishing $924 per GEO. The comparable margins of mid-tier rivals Agnico-Eagle Mines (NYSE: AEM  ) and Eldorado Gold (NYSE: EGO  ) underperformed that of Yamana by 20% and 15%, respectively.

Barrick Gold (NYSE: ABX  ) led the majors in the second quarter with by-product costs of just $358 per ounce, but on the strength of its copper production, Yamana undercut the cost str