Commodities & Metals

Which Gold Stocks Will Survive Gold at 5-Year Lows

There are really only two metrics that matter to gold miners: the price of gold and the all-in cost to get it out of the ground. As prices have fallen, the miners’ only choice has been to chop costs. That has helped some, but anyone who thinks any of these miners can reach those implied gains over the next 12 to 18 months is likely also a born gold-bug who sees a disaster around every corner that demands a hoard of gold to manage.

At some point the gold mining industry will have to consolidate. Whether that happens through mergers or asset sales and bankruptcies is all that is left to watch for.

One measure of survivability could be gold reserves. Of the five companies examined at here, Newmont sports the largest total with more than 83 million ounces, but Newmont’s total is second overall to Harmony Gold’s nearly 96 million ounces. Barrick is second (third overall) with just over 80 million ounces. Goldcorp claims 23 million ounces of reserves, Agnico Eagle claims reserves of more than 18 million ounces, and Randgold’s reserves total around 11 million ounces.

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As the value of gold reserves diminishes with the price of the yellow metal, the best positioned companies to survive are those that have both cash and enough credit to make an acquisition. Here is a quick look:

Randgold, as of December 31, 2014, had about $21 million in cash, cash equivalents and short-term investments. Long-term debt totaled just over $55 million.

Barrick, as of December 31, 2014, had about $2.7 billion in cash and equivalents and long-term debt of $12.75 billion.

Newmont, as of the same date, had about $2.5 billion in cash, cash equivalents and short-term investments. Long-term debt totaled $6.48 billion.

Goldcorp, as of the same date, had about $583 million in cash, cash equivalents and short-term investments. Long-term debt totaled $3.52 billion.

Agnico Eagle, as of the same date, had about $271 million in cash, cash equivalents and short-term investments. Long-term debt totaled $1.32 billion.

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Of the three largest miners, Barrick’s position is the most precarious. The company has sold off assets, and a rumored merger with Newmont has gone nowhere. Add to that the difficulties Barrick is having with its Pascua Lama mine on the border of Chile and Argentina, and the company’s headwinds are even stiffer.

Newmont recently announced an acquisition of the Cripple Creek mine in Colorado from AngloGold Ashanti for $825 million. This appears to have been a very shrewd move by Newmont because production will rise at a lower all-in cost per ounce. That could help Newmont wait out the downturn in the commodity gold price.