Right now is a good time to buy gold stocks.
Sentiment toward the sector is terrible… and many are trading for bargain prices.
But make sure you buy the right gold stocks. If you buy the wrong ones, you could still lose a lot of money…
With falling gold prices (the metal hit a low of $1,200 per ounce in June) and high production costs, many big gold miners are struggling. Some mines have even become unprofitable as production costs outpace gold prices. So miners have scrambled to cut costs.
[ad#Google Adsense 336×280-IA]For example, giant gold miner Newmont Mining had two of the most expensive mines in the industry.
About 14% of Newmont’s gold production (about 184,000 ounces) in the second quarter cost $1,496 per ounce.
However, in the third quarter, Newmont decreased the total costs at all its mines.
None of its mines’ costs were above $1,200 per ounce.
That’s a dramatic improvement.
But not all the big miners achieved equal results.
Two of the largest gold miners in the world, AngloGold Ashanti and Newcrest Mining, each had mines that cost over $1,200 per ounce in the third quarter. And well-known mining companies Harmony Gold and Coeur Mining also continued to operate unprofitable gold mines.
As you can see from the table below, some of these companies’ mines are still well above the current gold price of around $1,280 per ounce today as I write…
And these mines represent a good chunk of most of the miners’ total gold production.
For example, nearly 25% of AngloGold Ashanti’s gold production (253,000 ounces) cost more than $1,488 per ounce in the third quarter.
Meanwhile, 7% of Newcrest Mining’s total gold production (586,573 ounces) from the Hidden Valley and Bonikro mines cost $1,721 and $1,945 per ounce, respectively, for the third quarter.
Eight percent of Harmony Gold’s production (309,773 ounces) cost $1,721 per ounce. And Coeur Mining’s $1,625 an ounce production at its Kensington mine represents 46% (63,766 ounces) of its gold output.
As you would expect, the high costs of production have had an impact on these companies’ total earnings.
Harmony Gold only generated $1 million in earnings in the third quarter. To put that in perspective, the company generated $60 million in earnings in the third quarter of 2012.
AngloGold Ashanti was only able to turn a profit after cutting significant costs in many other areas. And Coeur Mining lost $46 million in the third quarter, with more than $20 million of the loss due to its gold production.
If gold stays around its current levels, these big mining companies will continue to lose profits on their high-cost mines.
In short, make sure the gold stocks you’re buying are still making money at lower gold prices. Some aren’t… and those are the ones you want to avoid.
Good investing,
Matt Badiali
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Source: The Growth Stock Wire