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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

Comments are welcomed!

Sunday, April 26, 2009

Expanding Coverage to the 16 Largest Gold Miners in the World

Given the extraordinary rise in U.S. deficit spending, parabolic expansion of the U.S. money base, and increasing pressure being put on U.S. fiscal and trade policy by China (the U.S. top lender), I have decided to expand my coverage of gold producers to include the 16 largest gold miners in the world.

The rationale for expanding coverage is that the larger producers are more likely to benefit earlier than the junior gold producers in a financial environment characterized by a rising in the price of gold.

China's recent pressure on the U.S. raises the probability of a U.S. currency crisis characterized by a falling U.S. dollar in my opinion. The impending bankruptcy of GM and Chrysler could serve as catalysts for growing U.S. dollar weakness if hundreds of thousands of GM/Chrysler workers and auto supplier workers -- maybe millions -- become unemployed. Fewer workers means fewer taxpayers, higher deficits, reduced capacity to service a parabolic deficit trend, a weaker U.S. economy, etc..

On the other hand (yes, I am a two handed economist, apologies to President Truman), a cascading financial crisis in Europe or rising geopolitical tension in Pakistan or some place else could temporarily drive the value of the dollar higher as a safe haven play.

Of course, we could muddle along over the next few years as U.S. households pay off their $2 trillion+ in excess debt and increase savings by $1 trillion+ and the price of gold could trade range bound between $800 and $1,000 per ounce.

Still, over time the larger gold producers are more likely to benefit earlier from rises in the price of gold than the juniors and that is why I have expanded my coverage. Moreover, the larger producers are generally less speculative and volatile than junior gold producers for investors who might be interested in moving into gold mining stocks, but don't want to invest in the more speculative juniors. This is a place to start your due diligence.

Remember, junior gold producer share rises will likely lag the larger producers and could provide double, triple, or even more of a boost than the larger producers as juniors sharply ramp up production in a rising price of gold environment. Moreover, junior gold producer share prices have lagged the larger producer share prices as gold has climbed over the past few years. A simple regression to the mean model suggests that juniors should outpace the majors over the longer run.

Speculation on junior gold producers aside, below are some basic reserves, production, and financial data for the 16 largest gold mining companies in the world including Barrick Gold (ABX), Goldcorp Inc.(GG), Newmont Mining (NEM), AngloGold Ashanti (AU), Kinross (KGC) Newcrest (NCMGY), Polyus (OPYGY), Agnico-Eagle (AEM), Gold Fields (GFI), Yamana Gold (AUY), Buenaventura (BVN), Lihir Gold (LIHR), Harmony Gold (HMY), Randgold (GOLD), IAMGOLD (IAG), and Eldorado Gold (EGO).

16 Largest Gold Miners in the World by Market Cap


I hope this information is useful.

Best,

The Gold Stock Strategist

2 comments:

MontyHigh said...

Great to see you back in the saddle. Hope all is well.

How about posting a graph showing how your index has been doing relative to gold and S&P 500?

MontyHigh

AlphaRomero said...

Consider coverage of their base metal credits as a portion of their overall revenue and/or effect on gold price per ounce. Some have much higher base metal sensitivity than others. Thanks!

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