Any individual gold miner would love to significantly expand its gold production, but if the entire industry expands production then there could be more downward pressure on gold prices. AngloGold Ashanti (AU) is going ahead with a new mining technique that will allow it to economically increase production from existing gold mines, even though increased production has the potential to prolong the industry's downturn. Instead of praying that high-margin miners can turn themselves around, it is in investors' interest to focus on miners that already have healthy margins.

AngloGold's advancement
The South African miner is starting to work with new reef-boring technology. Now it has the option to remove a gold vein without extracting all the surrounding material. By combining the extraction process with an injection of chemicals and cement it is able to stabilize the drilling area after extracting the gold, making sure the area will not collapse.

This technology lets AngloGold re-drill areas it was forced to leave as support columns. The result is that the company expects that in five years 10% to 20% of its South African gold production will come from this new technique. 

The individual miner's perspective
Given its margins, it is perfectly understandable why AngloGold is excited about its new reef-boring technology. In its third quarter, it cut its second quarter total cash costs by $89 per ounce to $809 per ounce. All-in sustaining cash costs give a better understanding of its overall costs. AngloGold's all-in sustaining costs came in at $1,155 per ounce, very close to the current gold price around $1,250 per ounce. Accurate reef-boring provides a simple way to extract more gold without having to open up new mines.

Harmony Gold Mining (HMY) is an underground gold miner in South Africa that needs to improve its margins. In its second fiscal quarter ending December 31, 2013, its all-in sustaining costs came in at $1,222 per ounce. Boosting its underground grade to 4.85 g per tonne helped to bring its costs down $42 from the previous quarter, but its all-in sustaining costs are almost the same as spot prices.

Harmony Gold needs to improve its margin if it wants to survive in a world with $1,250 gold. Following in AngloGold's footsteps to find new ways to extract more gold from existing deposits through new mining techniques is a straightforward way for Harmony to grow its revenue and profits. It takes time for new technologies to spread through an industry, but we can expect Harmony Gold to eventually consider this new reef-boring technology.

Stick with low-cost miners
Margin pressure is pushing miners to boost production with new techniques, and more production will help keep a lid on prices. For these reasons, the best miners are those that already enjoy extraction costs far below the price of gold. If the gold downturn lasts longer than what is expected, Yamana Gold (AUY) is in a good position to weather the storm. In its recent third quarter, its all-in sustaining cost (per gold equivalent ounce on a co-product basis) was just $888. And it has a low total debt-to-equity ratio of 0.14.

For many years, the SPDR Gold Trust (GLD -1.55%) was the most popular way to invest in gold, but right now the advantages of investing in quality gold miners are obvious. In the past four quarters, Yamana made $307 million in normalized income, even while the price of gold fell.

At the end of the day the SPDR Gold Trust subjects you to wild swings in investor sentiment. Yamana offers a degree of protection from the market as it can make money in a sideways market when the SPDR Gold Trust keeps on charging its 0.40% gross expense ratio.

Look at the long term
AngloGold's new reef-boring technology allows it to grow the world's gold supply and put more downward pressure on prices. More supply growth will only hurt the SPDR Gold Trust and keep gold moving sideways.

Yamana is a good way to ride out the downturn thanks to its production assets in Chile, Argentina, Brazil, and Mexico. It also pays a quarterly dividend. AngloGold's new mining strategy can help suppress prices for a period of time, but a quality miner like Yamana should be able to endure.