GoldCorp vs. Yamana Gold
Let us compare now the Yahoo finance data sheets of GoldCorp and Yamana Gold. Yamana Gold Inc. (USA) (NYSE:AUY) looks a bit more expensive with a trailing P/E of 26 compared to 17. In both cases, the forward P/E is roughly 11 and the dividend yield is about 1.7%. Goldcorp Inc. (USA) (NYSE:GG) is roughly three times larger, measured in market cap as well as in revenue, and has fewer debts. Based on the balance sheets, I thus favor GoldCorp.
A quick look at the charts:
The technical picture of Yamana may be preferable to some, but I prefer the perception that GoldCorp is more of a bargain.
Production costs
An (outdated) comparison of the production costs of both companies can be found here. The upshot is that at that time there was no good standard for the comparison of costs, but both companies do apparently well. In a recent CNBC interview, Goldcorp Inc. (USA) (NYSE:GG)’s CEO Chuck Jeannes said:
“… we produced gold last year for $874 an ounce all in, and we’ll look at between $1,000 and $1,100 this year. That’s a bit of an aberration because we’re bringing on a new mine and they’re never as efficient the first year as they will be. But that still provides a verystrong margin. … Actually, we expect [the prices] to come down as this new mine hits its stride.”
(The term all in refers to a new standard to compare production costs. These are considerably higher than the so-called cash costs which are often cited)
This article reports for Yamana Gold:
“Estimated cash costs for 2013 are forecast to be below $365 per GEO. … Yamana’s all-in sustaining cash costs for 2013 are projected to be below $800 per GEO.”
The term GEO refers to gold equivalent ounces, which implies that “… Yamana conveniently counts its silver production as gold,” leading to the question: “This could possibly terrify rookie investors: what does it really mean?” The source is again this article, which continues:
“To refer to Yamana’s full year 2010 numbers, it reported production of 1,047,191 GEOs … In reality, this was production of 864,768 ounces of gold.”
Doing the math on this shaky basis, “$800 per GEO” lies somewhere in the range $950-$1000. But to tell the truth, I simply don’t know.
For comparison, the data provided on the web site of market leader Barrick Gold Corporation (USA) (NYSE:ABX):
“In 2012, Barrick Gold Corporation (USA) (NYSE:ABX) produced 7.4 million ounces of gold at all-in sustaining cash costs of $945 per ounce and total cash costs of $584 per ounce …”
Similarly, Newmont Mining Corp (NYSE:NEM) reports “all-in sustaining cost of $1,149 per ounce” for 2012.
To put things into perspective, it looks to me as if these numbers do depend a lot on the life cycle of individual mines. It might be more meaningful to compare the averages taken over several years, but being a relatively new measure these are not available yet.
Conclusion
While Yamana Gold certainly looks interesting (which was also noted here and there), I vote for size, stability and (perceived) transparency; this leads me to invest in Goldcorp Inc. (USA) (NYSE:GG). In the future, I might reconsider Yamana or the ETF. Also, I might reassess the decision to make debt a main selection criterion. Of course, these are my personal decisions, potentially subject to errors of any kind, and I encourage you to do additional research.
The article Digging Into Gold Mines originally appeared on Fool.com and is written by Frank Schirmeier.
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