An Analysis Of The Top 10 Gold Miners

May 31, 2017

An Analysis Of The Top 10 Gold Miners

  • Each gold miner is different, so you have to carefully pick the right one for your portfolio.
  • Debt levels, gold reserves, mining costs, political and environmental risks, all have to be put into a perspective related to your risk appetite, strategy, and investment horizon.


Yesterday, we discussed the reasons it’s a good idea to have gold miners in your portfolio now. The goal of today’s article is to show you just how different gold miners are and how carefully you have to chose those to include in your portfolio.

Just as every mine is different, each miner is even more different. There are huge differences in potential future output, mining costs, debt structures, political risks, etc. All of these factors have to be assessed to provide you with the best hedging option for your portfolio according to your risk appetite and portfolio orientation.

In this article, I’ll discuss the top 10 holdings of the iShares MSCI Global Gold Miners ETF (NYSEARCA: RING) to give you insights into what to watch for and how that affects the risks and potential rewards for your portfolio.

Main Differences Among Gold Miners 

As we all know, gold prices are very volatile. It’s extremely difficult to make appropriate business decisions in such an environment. Therefore, the risk profile of every miner is different and has to be assessed individually. Factors that help in such an assessment are the following:

Debt Levels

Debt is extremely important because if gold prices fall below certain levels, only the debt-free miners will survive. On the other hand, leveraged miners are extremely exposed to positive moves in the price of gold.

If you think the economy might do well for a while but still want to be hedged by owning a gold miner, then one with low debt that can survive for a longer period of time even if gold prices fall below $1,000 is a good option. If you think gold prices will surge soon, then the best option is to buy the most leveraged one.

Gold Reserves

There are some miners with huge gold reserves and resources, while some miners know that their mines will be depleted soon. Gold miners with large reserves and lots of potential projects are attractive to long term investors that want to keep their portfolio exposed to gold for a very long time and know that their miner will provides a long term hedge. Miners with limited mine lives have to be assessed as cash flow cows with limited upside potential in relation to changes in gold prices.

Mining Costs

Mining costs are essential as the difference between the price of gold and mining costs is what determines the cash flow of a miner. The lower the mining costs, the higher the profit, the safety, and also the stock price. Gold miners that have mining costs close to or even above the current price of gold are a bet on gold prices surging before the miner goes bankrupt or is forced to sell assets. Such miners usually provide the largest potential upside.

Other Risks

As it’s difficult or expensive to mine gold in your own back yard, miners often look for gold in the most remote jurisdictions. This brings with it lots of political risks which are something normal in mining. If you can’t stand such risk, don’t invest in any kind of miner.

Alongside political risks, there are environmental risks, labor risks, management risks, etc.

To conclude, before investing in a miner, you should know it very well and think about all the things that can go wrong, compare it to what happens if things go well, and then see if the price is worth the risk and the reward.

An Analysis Of The Top 10 Gold Miners

I’ll provide a short overview of the top 10 gold miners to give you some insight into which one might be the best for you.


ABX is the largest holding of the iShares MSCI Global Gold Miners ETF (NYSEARCA: RING) making up almost 14% of the ETF.

It generates free cash flow when gold prices are above $1,000 per ounce. Thus, it gives relative protection on the downside. However, 67% of assets are financed by debt. This means that if gold prices fall below $1,000, ABX would have problems refinancing its debt and the stock price could become extremely cheap. The company’s goal is to lower its debt by $5 billion by 2019, but the large debt represents a larger risk on the downside.

On the other hand, ABX has a huge, well diversified mine portfolio and one of the largest reserve bases with 91 million gold ounces and an average mine life of 16 years.

Figure 1: ABX projects and pipeline. Source: ABX.

Trailing earnings per share are $1.21 per share while the operating cash flow is almost double. Given the current price of gold, the stock isn’t that expensive as the price earnings (P/E) ratio is 14.5 and the price to book value is 2.2.

Given the largeness of the company, those who want long term protection and are willing to risk a big part of the investment if gold prices fall below $1,000 should definitely take a look at ABX.


NEM, like ABX, is a very large and stable gold miner. NEM’s operating cash flow is around $5 per share which gives a price to cash flow ratio of 6.9. NEM’s free cash flow is also high at $3 per share.

NEM has 48% of its assets financed by debt and is therefore less risky than ABX from that perspective. Like ABX, NEM has a large pipeline that will keep its production stable for the foreseeable future.

Figure 2: NEM’s expected production. Source: NEM.

NEM is very similar to ABX. It’s globally diversified, has high free cash flow, and good long-term orientation. There have been some issues with the $1.2 billion impairment at Yanacocha and long delays building the $5 billion Conga mine in Peru. Such things are completely normal for miners.


NCM is an Australian miner. It has the longest reserve life of all the above and lowest all-in sustaining mining costs. As only 37% of assets are financed by debt, NCM is a better long-term miner to look at than both ABX and NEM.

Figure 3: NCM has the longest reserve life and the highest margin. Source: NCM.

The fact that NCM is traded on the Australian Stock Exchange and in the OTC market in the U.S. perhaps makes it a bit cheaper then ABX or NEM given the higher reserves and equal price to free cash flow of around 10.

As with every miner, there are different issues with NCM. Its top mine, Cadia, is in a seismically active zone and epicenters are close to or on the mine’s site. NCM’s Wafi-Golpu project is located in Papua New Guinea where the political decisions regarding the project have not yet been set in stone.


GG is a miner that just went on a spending spree. This is also a risk that goes with investing in miners, you never know what the management is going to do. Acquisitions are an excellent thing if gold prices go up, but have a terrible effect on the company if gold prices go down. GG acquired a 50% stake in Cerro Casale from Kinross Gold (NYSE: KGC) and ABX, the Quebrada Seca project from KGC, and took over junior miner Exeter Resource Corp. (NYSE: XRA) with the Caspiche project.

The total cost of all these acquisitions was $725 million where GG acquired around 50 million ounces of gold reserves at a grade of around 0.5g/t. This is a very large bill for such a low grade which makes it a very risky play as GG is going to need everything to run smoothly in development to operate profitably at these gold prices. Of course, eventual higher gold prices would prove the acquisitions as excellent and perfectly timed.

However, GG’s current operations are very profitable and the acquisitions give no financing issues to GG. Only 10% of GG’s assets are financed with long term debt, while total liabilities are 37% of assets but the big majority of that falls under deferred tax liabilities.

Figure 4: GG’s portfolio. Source: GG.

Apart from the acquisitions, GG’s plan is to grow through exploration around existing mines. This could be a good bet, but also a bad one as money is spent on uncertain outcomes.

All in all, GG is an option on the price of gold. Low grade mines aren’t that valuable now as they can’t produce significant cash flows, but if and when the price of gold increases, so will the value of such mines.


AEM is a Canadian based producer with operations in Canada, Finland, and Mexico. Only 35% of assets are financed with debt, and 50% of that is deferred taxes. AEM’s cash flow is positive and comes from its high-quality assets. What separates AEM from other miners is the high grade of the reserves which is double what other competitors have on average.

Figure 5: AEM has the highest gold grade reserves. Source: AEM.

On top of it, AEM is constantly exploring around its mines and adding new reserves as others get depleted. Up to this point, AEM seems like the best miner, but it’s also more expensive than the previously mentioned miners as its price to cash flow is 13.6. However, if you want quality, stability, high grades, and low debt that can weather any slump in gold prices, AEM is an interesting candidate.


KGC is the first company that really depends on higher gold prices as at current gold prices, its operating cash flow is barely positive. However, because of the high mining costs, KGC is a leveraged play on the price of gold. If gold prices jump, everything KGC has and does suddenly becomes profitable and extremely valuable. On the other hand, if gold prices remain where they are or go lower, an ongoing concern will be that KGC will have to further look toward debt markets and continue to sell assets in order to continue.  (Reminder: KGC sold 25% of its Cerro Casale project to GG).


GOLD is a miner focused on Africa, and is one of the most conservative companies because it doesn’t invest in projects if the IRR (internal rate of return) is below 20% on a gold price of just $1,000. The company has practically no debt, has been consistently profitable for the past 10 years, and is, of course, the most expensive of the miners we have discussed today. GOLD’s price to cash flow ratio is 15.7 which is the highest of the stable and profitable miners we’ve mentioned.

Its stock price is also the least volatile. We can conclude that owning GOLD is just a bit more volatile than owning actual gold as GOLD’s stock price dropped just 50% in the period from 2011 to 2015 while other miners dropped between 80% and 90%.

GOLD’s risk is that it operates in jurisdictions that aren’t perceived as extremely safe.

Figure 6: GOLD’s mine footprint. Source: GOLD.


AU is a South African miner where fatalities are, unfortunately, the norm at around 8 per year. It operates 17 gold mines in 9 countries.

The 2017 high expected all in sustaining cost (AISC) of $1,100 make AU one of the costliest miners and leave little room for profit. However, small increases in the price of gold can quickly make AU a cheap miner as its profits could easily double or triple. Free cash flow jumped 97% as gold prices increased from $1,100 to just above $1,250.


GFI is another high cost miner with low net margins that is dependent on higher gold prices. If gold prices fall, GFI could quickly become a terrible investment just as it was for those who invested in 2011. GFI’s stock price is just one quarter of what it used to be.


EGO is a completely different miner than those described above as its success story depends on its development projects in Turkey, Greece, and the recently acquired Integra Gold Corp, acquired for C$ 570 million. The market doesn’t really like projects and the shares are usually heavily discounted. EGO’s stock price is $3.55 while its book value is $4.87. However if EGO delivers, the potential is huge.

Figure 7: EGO has the potential to triple its gold production. Source: EGO.

On top of the potential, EGO has just 27% of assets financed by debt. Such a miner is for those who really want to hit the jack-pot. If everything goes as planned, EGO could become a top gold producer. If then gold prices also increase, you could almost retire. The problem is that there will be many things that go wrong as that’s usually the case with mine development.


The goal of this article has been to describe how different gold miners are and how one should carefully analyze which miners are the best fit for the risk reward structure of their portfolio.

Those who plan to allocate some resources to gold miners over time could bet on the highly leveraged, high cost producers as those stock will jump the most when gold prices increase. Potential investments are GFI, AU, and KGC.

Those who like safety, a dividend, and a stable hedge should go for companies like ABX, NEM, NCM, and AEM.

Exposure to growth can be found in companies like EGO. As this is an analysis of just the biggest miners, it lacks the growth potential junior miners offer, but there are plenty of those if you want to cut your teeth on some proper due diligence.

Disclaimer: I have no position in the stocks mentioned above. I own smaller miners that are still under the radar.