Tuesday September 25, 2012
by Elliott Gue, editor Personal Finance
Gold is now poised for another surge that will take the metal to well over $2,000 per ounce by the first half of 2013. Rarely has there been a better time to invest in gold.
All investors should hold at least a portion of their assets in gold. Along with physical gold or an ETF, consider the stocks of mining companies with strong production growth prospects; here’s a look at three of our favorites.
Newcrest Mining Ltd. (NCMGY) is a pure mining play on gold. The Australia-based miner has set guidance production of 2.3 million to 2.5 million ounces for fiscal year 2013, an increase of 9 percent from 2012.
The bulk of spending will go to expand the Lihir mine in Papua, New Guinea, which is one of the lowest-cost sources of the yellow metal in the world and currently produces about 40 percent of the company’s total. Much of the rest will go to the Cadia East project in Australia.
The company’s five-year outlook is arguably the most bullish in the industry. Management currently expects fiscal year 2017 to see a 35 percent to 55 percent jump in gold production.
This growth will be completely funded by one of the industry’s strongest balance sheets, making it “organic” and independent of acquisitions.
Assuming we’re only half right about our bullish gold forecast, that should mean a huge lift for Newcrest shares, which are currently well behind recent highs in the 40s.
Management is also famous for sharing the wealth through dividends, increasing the “final” portion of its semi-annual payout by 17 percent.
Freeport-McMoRan Copper & Gold (FCX) reported a 48 percent drop in second-quarter 2012 earnings, as copper prices stagnated and production declined.
However, output beat both management guidance and first-quarter tallies, largely because the company resolved difficulties at its Grosberg Mine in Indonesia.
Better still, the company’s bullish plans for growth have stayed on track, as it continues to develop five super mines around the world. Four of these are in the Americas, where the political situation is considerably more stable than in Indonesia.
Freeport expects dramatic increases in copper, molybdenum-a key element used in high strength steel-and gold over the next five years. Profits will be multiplied by how much prices of those resources rise.
Freeport will build value even if resource prices disappoint, making it suitable for investors of all stripes. This year’s boost in the quarterly dividend to an annualized rate of $1.25 adds an income incentive as well.
Goldcorp (GG) has the three key qualities we look for in a senior gold producer: strong production growth potential through near-term mine projects, a low cash production cost per ounce and focus on mining jurisdictions with below-average political risk.
Goldcorp will generate just under half of its 2012 gold output from Canada. The Cochenour project in the Red Lake district of Ontario is scheduled to come on stream in late 2014 at a cash cost of around $360 per ounce. In Quebec, Goldcorp’s Eleonore project is also due for start-up in 2014, with estimated cash cost of less than $400 per ounce.
Goldcorp’s second-largest mine is Penasquito in Mexico, which started production in 2010. The company has a host of additional projects in the latter stages of construction.
The list includes its 40 percent-owned Pueblo Viejo mine in the Dominican Republic that went into production in the middle of this year. Even more attractive is the Cerro Negro mine in Argentina that’s expected to open in late 2013, with cash costs of under $300 per ounce.
Management estimates new projects underway across the Americas will boost output 70 percent by 2016 to over 4.2 million ounces per year.
Learn more about this financial newsletter at Personal Finance.