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Big Gold Miners Making Huge Profits

By Matt Badiali, editor, S&A Resource Report
Wednesday, November 3, 2010

"Big Gold" is finally benefiting from big gains in the price of its product.
 
Back in May, I noted how the world's largest gold mining companies have struggled to increase their profits and share prices... even though gold was in a big bull market.
 
Vital input costs like fuel, labor, and infrastructure rose just as fast as gold... so shares of most gold producers stagnated from 2006 to 2010.
 
But as giant gold producer Goldcorp (GG) just showed us, gold's recent climb from $950 an ounce to $1,350 has finally turned on the money machine for miners...
 
Goldcorp is one of the five largest gold miners in the world and one of its most efficient. Last week, the company reported it made $979 on every ounce of gold produced in the quarter. The profit per ounce is 38% higher than the actual price of gold two years ago. The higher profit translated into a 65% increase in earnings... and allowed the company to increase its small dividend payment.
 
Over the last two years, the price of gold rose 90%. Input costs for the major gold producers increased a small amount, but their profits soared. Take a look:
 
Changes Since October 2007
Newmont Mining
Barrick Gold
Goldcorp
Cost per Ounce
+8%
+0%
+12%
Profit per Ounce
+163%
+195%
+221%
 
Profits may have soared, but the share prices of these companies haven't kept up. Goldcorp's stock is only up 31%. Newmont's up 24%. Barrick climbed a measly 13%.
 
The table below shows price-to-earnings (P/E) ratios for the big three miners. Back in 2007, investors were willing to pay an enormous amount for these companies. That's not the case today...
 
 
Newmont Mining
Barrick Gold
Goldcorp
P/E October 2007
134
47
89
P/E Today
16
14
18
 
Investors don't seem to be on the gold bandwagon yet. It's clear from these numbers they are still wary of Big Gold's profits... as if the price of gold will evaporate back to $700 per ounce overnight.
 
After the last two years of stagnant shares, the reality of the mining companies' newfound profits hasn't sunk into the general market yet. We're in the throes of one of the greatest gold bull markets in history... Yet shares of these companies haven't grown in step.
 
The profits are piling up at the major gold miners. That's great for shareholders. At some point, investors will buy them in droves. (At the same time, it's great for junior mining companies. Cash-rich majors will continue to acquire new projects.)
 
If you haven't taken a position in big gold miners, you're not too late.
 
Good investing,
 
Matt Badiali




Further Reading:

Despite soaring gold prices, investors must remember to do their homework before leaping in. "To protect your investment," Matt says, "you need to find the best-run companies with the best chances of developing a mine from their discoveries." Learn about Matt's safe strategy here: One Simple Strategy for 3,000% Gains.
 
The world's hottest spot for new gold mines is also the "scariest" spot for most investors. But if you just "leave your fear bias at home," Matt says, "you can find some excellent gold companies there." Read on here: How to Buy Elite Gold Miners at a 50% Discount.

In The Daily Crux
Market Notes
Crude oil prices jump to six-month high, riding steady manufacturing demand from U.S. and China.
 
Trucking giant Paccar soars to 52-week high… shares up 45% in 2010.
 
REIT strength continues… Simon Property hits two-year high after earnings report.
 
Earnings today... Ambev (Brazilian brewing giant), Time Warner, CVS Caremark, Transocean (offshore drilling).
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1197.96 +0.4% +14.6%
Oil 36.74 +1.3% -9.6%
Gold 131.57 -0.7% +23.6%
Silver 24.25 -0.3% +42.7%
US-Dollar 76.68 -0.6% +0.5%
Euro 1.41 +0.7% -3.9%
Volatility 19.56 -9.3% -32.1%
Gold Stocks 523.47 -0.7% +22.8%
10-Year Yield 2.62 +1.2% -24.5%

World ETFs
Symbol Price
Change
52-Wk
USA 119.95 +0.4% +14.6%
Canada 29.28 +0.2% +19.7%
Russia 20.30 +0.3% +15.3%
India 39.11 +0.2% +41.8%
Israel 16.70 +0.6% +25.9%
Japan 10.02 +0.3% +4.1%
Singapore 14.07 +0.9% +32.1%
Taiwan 14.11 +0.2% +20.8%
S. Korea 56.79 +1.4% +32.3%
S. Africa 70.66 +1.9% +36.4%
China 46.99 +2.1% +10.4%
Lat.America 53.17 -0.5% +20.0%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 122.19 +0.9% +1.1%
Big Pharma 66.13 +0.2% +8.3%
Internet 70.39 +1.0% +31.5%
Semis 14.65 +0.8% +33.7%
Utilities 31.72 -0.2% +12.2%
Defense 18.15 -0.2% +16.3%
Nanotech 9.63 +1.3% +0.1%
Alt. Energy 10.15 +0.4% +3.9%
Water 17.53 +0.2% +9.6%
Insurance 15.60 -2.5% +18.6%
Biotech 20.19 +0.3% +27.3%
Retail 18.10 +0.3% +22.0%
Software 24.03 0.0% +25.6%
Big Tech 53.02 +0.5% +28.5%
Construction 12.25 -0.3% +7.6%
Media 13.11 -0.2% +26.1%
Consumer Svcs 65.11 +0.3% +26.4%
Financials 53.62 +0.8% +6.5%
Health Care 64.75 +0.0% +12.1%
Industrials 60.30 +0.2% +22.5%
Basic Mat 69.17 -0.3% +27.4%
Real Estate 55.61 -0.1% +35.0%
Transportation 87.79 +1.0% +29.7%
Telecom 22.35 +0.4% +28.4%