LONDON -- The price of gold has risen by 444% over the past 10 years and by 117% in the last five years. Set against this background, you would expect to see gold miners enjoying record earnings growth and shareholder returns -- but this hasn't happened.

A look at the biggest gold miners in the FTSE 100 (UKX) and FTSE 250 (MCX) shows that only two -- Randgold Resources (LSE: RRS.L) and Fresnillo (LSE: FRES.L) have managed to outperform the SPDR Gold Trust ETF (NYSE: GLD) over the past five years.

The rest have fallen lamentably short, and some have even lost money for their shareholders over this time:


Five-Year Gain/Loss (Share Price)

Randgold Resources 308%
Fresnillo 263%
SPDR Gold Trust ETF 113%
Yamana Gold 99%
Centamin Egypt (LSE: CEY.L) 50%
Hochschild Mining 5%
Anglogold Ashanti (4%)
African Barrick Gold (23%)
Petropavlovsk (LSE: POG.L) (56%)

So why have these companies performed so badly? I've taken a closer look at a couple of suspects to see whether now is a good time to buy into miners whose share price is playing catch-up -- or whether investors would be better off investing directly in gold.

This Russian gold miner was formerly known as Peter Hambro Mining, and its eponymous founder remains the company's chairman. The company's fortunes since 2008 highlight all the risks involved in investing in the miner, not the metal.

Investors saw strong gains from 2003 to 2008, when the company's share price crashed heavily, before recovering once more by late 2009. The problem is what has happened since then.

Difficulties expanding production and indifferent management have seen net debt balloon from just 72 million at the end of 2007 to 700 million today -- almost as much as the company's current market value. The company's main mine has produced less ore this year -- and, although forecast, this could signify that future mining will become more costly and high-risk.

The final ingredient in this volatile mixture is that Petropavlovsk's assets are all in Russia, a country that investors continue to treat with suspicion.

Anyone who invested in Petropavlovsk hoping to beat the price of gold will have been sorely disappointed, but the company does now look to be making better progress and looks cheap on a price-to-earnings ratio of just 5.4 and a yield of 2.7%. Even when Petropavlovsk's net debt is factored in, its enterprise value (market cap + net debt / earnings) is only 10, making it look reasonable value.

Centamin Egypt
Egyptian gold miner Centamin Egypt looks very affordable at present, even though its shares have gained 20% so far this year.

Operations at its main Sukari mine in Egypt were interrupted by the uprising in Egypt in 2011 and have been disrupted again this year by strike action and maintenance shutdowns. It's possible that Centamin's share price would have kept ahead of the price of gold had it not been for these factors, which led to a big sell-off of the firm's shares.

However, the company now says it is on target to meet this year's production target of 25% growth and looks attractively priced. With net cash, a P/E of just 9.3, and strong earnings growth forecasted for 2012 and 2013, Centamin could deliver some solid gains for investors if the price of gold stays firm over the next couple of years.

Randgold does it best
The performance of Africa-focused Randgold Resources over the past five years has been outstanding -- and with good reasons. It has an enviable record of delivering successful gold-mining projects in difficult African countries and making money from them.

In March this year, Randgold investors were spooked by a military coup in Mali, where the company operates a mine. Even though panic-stricken sellers wiped nearly 40% off the company's share price, this proved to be a buying opportunity in disguise. The coup did not affect Randgold's operations, and the company's share price has since rebounded beyond its original levels as it continues to make good progress with its biggest project to date, the Kibali mine in the Democratic Republic of Congo.

The only downside to investing in Randgold is that it's probably too late to make big gains, as a FTSE 100 member with a market value of 6.7 billion pounds and a P/E of 28. I think that the potential upside is fairly limited for the foreseeable future.

The solution to this, of course, is identifying and investing in high-quality resource shares like Randgold Resources at an earlier stage in their development.

Unearthing quality resource stocks
Investing in smaller resource and mining shares can deliver massive gains -- but they do carry an element of risk. These pioneering companies often operate in difficult environments in politically unstable parts of the world and require huge capital investment before they can make any money.

However, what successful investors have realized is that the best junior companies in the mining and oil and gas industries all share a number of characteristics, which you can learn to identify.

Once you understand this, you can unlock the secret to multibagging gains (if you had invested in Randgold 10 years ago, you would be sitting on a 1,008% profit right now).

The latest Fool report, "How to Identify Great Resource Stocks," takes a close look at this subject and explains in simple steps exactly how you can identify the best small-cap resource shares before they take off.

If making huge profits by investing in mining and commodity shares appeals to you, then I would suggest that you download this report immediately -- it's completely free but will be available for a limited time only.

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