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Read This to Learn About the World's Safest Gold Stocks

By Matt Badiali, editor, S&A Resource Report
Wednesday, August 21, 2013

As Jeff Clark expected would happen in late June, gold stocks have put in a bottom... and staged a huge rally.
 
The benchmark gold index is up 36% off its lows.
 
Like Jeff, I expect gold stocks will work higher over the longer-term. Of course, there will be corrections along the way, which is why you should stick to some of the world's safest gold stocks.
 
The key to safety is to focus on "all-in" costs. This is the total cost of an ounce of gold production. It includes the cost of mining at each mine the company owns, plus the costs of running the company.
 
It is a way to look at gold-mining companies as businesses, instead of simply a way to play rising gold prices. It's a critical idea for making money in the gold-stock sector...
 
In my most recent issue of the S&A Resource Report, I presented a proprietary, in-depth analysis of the gold sector. I showed readers a selection of the best companies from the gold sector with our estimated "all-in" costs.
 
It's important to understand that we did not try to figure out the industry's "all-in sustaining cost" that we see companies reporting today. We used some assumptions that the industry wouldn’t want... For example, I assumed unprofitable mines were closed.
 
In the table below, I compared the all-in cost and the price of gold at the top of the column. If the costs are higher than the gold price, the company will lose money. We sorted the list by operating costs with gold at $1,200 an ounce, the recent low.
 
All-In Costs
Gold Price per Ounce
$800
$1,200
$1,600
$2,000
Agnico Eagle
$1,495
$1,245
$1,245
$1,245
Kinross
$1,258
$1,144
$1,144
$1,144
Newmont
$1,148
$1,110
$1,128
$1,128
AngloGold Ashanti
$1,058
$1,034
$1,040
$1,040
Yamana
$1,035
$1,025
$1,025
$1,025
Gold Fields
$932
$974
$974
$974
B2Gold
$1,014
$935
$935
$935
Eldorado
$846
$841
$841
$841
Goldcorp
$801
$807
$807
$807
Barrick
$682
$737
$740
$720
Randgold
$734
$734
$734
$734
Iamgold
$699
$732
$748
$748
New Gold
$680
$727
$727
$727

All but Agnico Eagle are profitable with gold at $1,200 per ounce. If gold suffers another big move down, however, a lot of these businesses will struggle.
 
You can see what I mean in the table below. It shows how much money each company will earn at a given gold price. These numbers are the profit per ounce multiplied by the volume of gold produced per year.
 
We sorted the table by earnings at $1,200 an ounce.
 
Operating Earnings (Millions)
Gold Price per Ounce
$800
$1,200
$1,600
$2,000
Barrick
$731
$3,665
$6,848
$11,547
Goldcorp
-$2
$1,195
$2,411
$3,627
AngloGold Ashanti
-$508
$642
$2,231
$3,824
Newmont
-$1,433
$436
$2,405
$4,440
Iamgold
$78
$412
$774
$1,137
Gold Fields
-$123
$398
$1,103
$1,808
Randgold
$47
$334
$620
$907
Eldorado
-$29
$260
$549
$839
Yamana
-$280
$221
$726
$1,231
New Gold
$39
$218
$402
$586
Kinross
-$815
$145
$1,190
$2,234
B2Gold
-$40
$88
$220
$352
Agnico Eagle
-$370
-$45
$351
$747

At $800 per ounce of gold, our model estimates that nine companies will not be profitable. On the other hand, we see companies like Barrick, Iamgold, Randgold, and New Gold should be profitable.
 
Now... I'm not saying gold will go down to $800 an ounce... or even $1,200 an ounce. But if you're interested in gold companies that will stay profitable if gold doesn't soar from its current levels, consider owning the companies with the low "all-in" costs. These are the safest gold companies on the market. And they're the ones I'm encouraging my readers to own.
 
Good investing,
 
Matt Badiali




Further Reading:

Earlier this month, Matt explained why gold stocks could easily double from their current levels. "It's a 'blood in the streets' environment for the sector," he writes. "And when there's 'blood in the streets,' there's often great value." Get all the details here: Why Gold Stocks Could Easily Rally 100% This Year.

In The Daily Crux
Market Notes
The euro jumps to a six-month high.
 
Gold stocks are in rally mode... Barrick, Newmont, and Goldcorp are all up 15%-plus over the past month.
 
Corn is the worst-performing major commodity over the past 12 months... down 41%.
 
Health care fund IYH is up 70% over the past two years, including dividends.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1652.35 +0.4% +16.5%
Oil (USO) 37.52 -1.7% +4.7%
Gold (GLD) 132.45 +0.3% -15.8%
Silver (SLV) 22.19 -0.7% -20.6%
U.S. Dollar 80.92 -0.4% -1.9%
Euro 1.34 +0.5% +8.6%
Volatility (^VIX) 14.91 +11.4% +6.4%
Gold Stocks (^HUI) 274.21 +3.6% -37.3%
10-Year Yield 2.81 -2.4% +55.3%

World ETFs
Symbol Price
Change
52-Wk
Israel (ISL) 15.15 -1.5% +31.0%
Japan (EWJ) 11.22 -0.9% +22.2%
USA (SPY) 165.58 +0.5% +19.1%
China (FXI) 35.57 -1.4% +6.2%
Taiwan (EWT) 13.14 +0.0% +5.8%
Canada (EWC) 27.71 +0.2% +1.2%
Singapore (EWS) 12.87 -0.9% -0.2%
India (IFN) 18.48 +0.0% -2.5%
Russia (TRF) 13.88 +0.1% -3.0%
S. Korea (EWY) 55.83 -0.6% -3.1%
S. Africa (EZA) 59.57 +1.4% -6.8%
Lat.America (ILF) 35.74 +0.2% -15.0%

Sector ETFs
Symbol Price
Change
52-Wk
Biotech (PBE) 32.10 +1.4% +40.5%
Media (PBS) 21.99 +1.0% +39.9%
Defense (PPA) 26.81 +0.5% +37.1%
Construction (PKB) 19.52 +1.6% +33.8%
Health Care (IYH) 104.63 +0.3% +31.1%
Retail (PMR) 32.00 +1.0% +31.0%
Financials (IYF) 73.05 +1.2% +30.4%
Alt. Energy (PBW) 5.46 +2.3% +28.6%
Consumer Svcs (IYC) 105.90 +0.8% +28.3%
Industrials (IYJ) 87.45 +0.4% +25.7%
Transportation (IYT) 114.14 +1.0% +24.4%
Insurance (PIC) 19.01 +0.1% +18.3%
Software (PSJ) 32.18 +1.1% +18.0%
Water (PHO) 22.44 +0.4% +17.7%
Telecom (IYZ) 27.00 +0.9% +13.9%
Big Tech (QQQQ) 75.67 +0.4% +12.1%
Semis (PSI) 16.39 +0.2% +9.3%
Basic Mat (IYM) 71.42 +0.8% +9.1%
Nanotech (PXN) 6.66 +0.9% +6.3%
Utilities (XLU) 37.57 +0.9% +5.3%
Real Estate (IYR) 62.40 +2.4% -0.3%

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