As the world comes to grips with a deepening financial crisis and a U.S. balance sheet that's not getting any cleaner, gold remains the talk of the town.
Fortunately, several mid-tier gold miners have positioned themselves to harvest organic production growth just as prices for the yellow metal are beginning to hit their stride once again. Since last October, when gold hovered near $740 per ounce, shares of Yamana Gold (NYSE:AUY) have surged more than 140% as investors look further down the company's development pipeline into a field of safe haven value.
Yamana Gold released two studies late last week evaluating the economic potential of several gold-bearing properties within the company's portfolio. Like a farmer evaluating which fields to till and which to leave fallow, Yamana has identified mine complexes in Mexico and Brazil that offer a truly golden opportunity.
The Mercedes and Klondike properties in Mexico now boast probable reserves of 604,000 ounces of gold and 6.16 million ounces of silver. The average gold grade of 7.58 grams per tonne, or 0.24 troy ounces, is more than 10 times the average grade of reserves for rival Kinross Gold (NYSE:KGC) and more than twice that of Randgold Resources (NASDAQ:GOLD). Yamana hopes to bolster reserves by another 50% or more before making a final construction decision in early 2010, and it will extend a 400-meter exploration tunnel in 2009 to aid in that process. Mining the gold could cost as little as $264 per ounce.
Further south of the border, Yamana foresees the release of a feasibility study and construction decision for the Ernesto and Pau-a-Pique properties before the end of 2009. The scoping study just released contained such favorable metrics that these properties are being placed on the fast track. With an internal rate of return estimated at 38%, and estimated production of 100,000 ounces per year at a cost of $356 per ounce, Yamana is already accounting for construction of these mines within its 2010 capital spending budget.
While I believe that major producers like Newmont Mining (NYSE:NEM) and royalty companies like Royal Gold (NASDAQ:RGLD) represent important vehicles for gold exposure, I have consistently preferred the intermediate miners like Yamana Gold and (my top pick) Agnico-Eagle Mines (NYSE:AEM) for their sheer organic growth potential. With gold looking poised for another strong year, I see Yamana Gold harvesting some tasty nuggets for shareholders.
Further Foolishness:
- Gold holds up despite the dollar's rally.
- A look back at Yamana's third quarter.
- Volatility is not likely to subside.
