Gold Miners: They’re Not All Created Equal

By David Berman

It is tempting to dismiss gold producers as a homogeneous group of stocks that merely trade with the price of gold. What a mistake.

Since mid-2005, when concerns arose about the U.S. dollar and the health of the global financial system, the price of gold has risen about 160% in U.S. dollar terms. In Canadian dollar terms, according to information gleaned from Bloomberg, gold has risen 115%.

By comparison, the returns of a half-dozen Canadian gold producers (selected more or less randomly, but they tend to be the better-known names) look less impressive: If you had invested equal amounts of money in Barrick Gold Corp. (ABX), Goldcorp Inc. (GG), Kinross Gold Corp. (KGC), Iamgold Corp. (IAG), Yamana Gold Inc. and Gammon Gold Inc. (GRS), your return since mid-2005 would be 76% – and that is including dividends.

The problem is that the respective returns on these stocks have hardly been uniform, even as gold itself has marched steadily higher. Yamana and Kinross are standouts for their gains of 131% and 135%, respectively.

Meanwhile, Gammon Gold stands out for its 9.8% decline. Yes, even if you had made a prescient bet on gold at the start of the remarkable five-year bull market in the precious metal, you would have nothing to show for your wisdom but a big headache. Rising gold prices are one thing; how much a company has in the ground and the cost at which they can get it out of the ground is another.