Can you hear me now? Sorry to borrow from that annoying cell-phone commercial, but I want to be sure I'm being heard here. It's not as though I'm peddling the Brooklyn Bridge.

I'm simply committed to helping Fools see the immutable value in gold mining equities at this juncture. I've already presented 700 reasons to own some gold, tabulated the trillions of dollars tossed into the fire of deleveraging derivatives, and outlined the hazards of a compromised U.S. dollar. When I see value striking this deep for an equity with impressive growth potential, though, it's my Foolish duty to bring it to your attention.

Shares of Yamana Gold (NYSE:AUY) have tumbled 75% since the onset of the gold correction in March, compared to a drop of more than 50% for Agnico-Eagle (NYSE:AEM). I could only watch with amazement this week when the market tacked on further losses after the company revised production guidance to achieve 2 million ounces of gold per year by 2012, instead of 2011. To understand the growth side of the equation, let's take a look at a selection of key projects underway and where they stand.


Proven and Probable Reserves




Cash Costs

per Ounce

2008 Estimated Production or Project Status


2.35 m oz.*



150,000 oz. in 2008

El Penon

1.93 m oz.



420,000 oz. in 2008


1.22 m oz.



70,000 oz. in 2008


1.77 m oz.




Targeting Q2 2009

200,000 oz. in 2009

Minera Florida

602,000 oz.**



Ramping up to

110,000 oz. in 2009

*Chapada contains significant copper reserves of 2.3 million pounds.
**Minera Florida contains significant silver reserves of 4.95 million ounces.

With $238 million in cash on hand, one of the lowest cash costs of any gold miner, and some serious cash flow from its producing mines, I see no reason to doubt Yamana's ability to execute the stated production growth targets of 38% for 2009, and 100% by 2012. If gold remained right where it is today, at around $770 per ounce, this would still be a solid growth story. Of course, many see gold climbing much higher.

Now that we've glanced at the growth potential, let's consider valuation. I've devised a valuation metric that I will apply to metal miners going forward. We'll call it Enterprise-to-Reserves, representing a ratio of the enterprise value to the current market value of its proven and probable reserves. This asset category represents only the best-defined portion of unmined material and provides the most reliable estimate of mineral wealth. Miners typically report reserve estimates at each year-end, and Yamana's last tally was 17.9 million ounces of gold. At the present spot gold price of around $770, the market value of these reserves is $13.78 billion. With an enterprise value of just $4.0 billion, Yamana's Enterprise-to-Reserves ratio is just 0.29.

Before we compare that result to some competitors, it's important to note that we've only taken the principle target metal, gold, into account. The metric overlooks Yamana's 182 million ounces of silver and 11.42 billion pounds of copper in proven and probable reserves. Since miners differ in the way they account for various products as they pertain to costs, etc., we'll just stick with the gold for now. Let's see how Yamana's value stacks up against some major competitors.


Enterprise Value

Proven & Probable Gold Reserves

Enterprise-to-Reserves Ratio

Agnico-Eagle Mines

$5.48 B

16.7 million oz.


Barrick Gold (NYSE:ABX)

$25.5 B

124.6 million oz.



$835 M

7.97 million oz.


Goldcorp (NYSE:GG)

$14. 65 B

42.8 million oz.


Kinross Gold (NYSE:KGC)

$7.62 B

46.6 million oz.


Newmont Mining (NYSE:NEM)

$16.32 B

86.5 million oz.


Yamana Gold

$4.01 B

17.9 million oz.


Calculations made using gold spot price of $770 as of Oct. 21, 2008.

By this metric, which I believe is a valuable one, Newmont looks to be the bargain among the majors, although Barrick also fared well. Results for Agnico-Eagle and Goldcorp came in surprisingly high, suggesting Kinross and Yamana are the cream of the intermediate crop. IAMGOLD is smaller than the rest, which may account for the relative bargain. Although I half-expected Yamana to come out at the top of this pack, I am more than satisfied considering that the company pays less than any other to retrieve the gold from the ground.

Further Foolishness:

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.