Gold is a tangible asset that can be included in portfolios for some diversification. However, the physical commodity is bulky and expensive to store; this makes it a liability instead of an asset for many private investors.

Because of this, investors usually turn to gold miners in order to gain exposure to the sector. Gold miners also offer dividend payouts, which physical gold does not. That said, gold miners have hardly proven themselves as guardians of wealth during the past few years.

Over the past year, the NYSE ARCA GOLD BUGS INDEX has collapsed 25%, underperforming the S&P 500 by a staggering 43%.

Still, gold miners are an essential part of a portfolio if an investor is unable to gain direct exposure to the metal. Fortunately, they're not all in trouble.

Bright spots
The three bright spots of the sector are Goldcorp (NYSE:GG), Newmont Mining (NYSE:NEM), and Barrick Gold (NYSE:GOLD). These three companies all have size on their side. Additionally, they have the lowest costs in the industry and there is plenty of potential for output growth during the next few years.

For example, Goldcorp is expecting to drive gold production higher by 1 to 1.3 million ounces per annum by 2016. The company's production during 2013 averaged 2.7 million ounces, while 2016 production is expected to be in the region of 3.7 to 4 million ounces.

What's more, Goldcorp has kept its balance sheet relatively clean with net debt only amounting to around 10% of total capital. Capital spending for the company has reached an inflection point, so it is unlikely that a huge amount of further capital will have to be found in order to meet output targets.

Management expects costs to drop by around $100 per ounce this year. Based on a conservative price of $1,200, Goldcorp believes that it will be free cash flow positive by the fourth quarter of this year, opening up the potential for impressive shareholder returns.

Shrinking to grow
Barrick has been busy divesting high-cost non-core assets and is now in a prime position to drive free cash flow growth and reduce debt. Net debt is expected to fall by around 7% this year, from $10.7 billion at the end of 2013 to $10 billion ending 2014.

Further, the company's low cash cost of production should help it maintain cash generation in an environment where the price of gold is under pressure.

Barrick's cash cost of production is nearly the lowest in the industry. The company is guiding for an adjusted operating cost of gold production per ounce of $590 to $640 for 2014.

Takeover target
Newmont is also aiming to be free cash flow positive by the end of this year. The company has based this on a conservative forecast of $1,250 per ounce of gold. However, Newmont is still struggling with Indonesian export license issues, and this could disrupt the company's full-year output and earnings figures.

Nevertheless, there is still the prospect of merger activity. Despite the collapse of talks between Barrick and Newmont, it is clear that Newmont is attractive as an acquisition target. This speculation could help the company going forward.

Foolish summary
These three gold miners are not only the largest in the sector but they also have impressive outlooks. Goldcorp will continue to do what it does best over the next few years, generating cash and growing production. Barrick is concentrating on making up for the mistakes of its past, and so far the company seems to be making progress. Meanwhile, Newmont is promising to become free cash flow positive this year based on a conservative forecast. What's more, the company could become the target of a larger peer.