Monday, November 29, 2010

Choosing the Best Gold Mining Stocks


There are many contributing factors to consider when determining the overall value of a gold mining company. The following criteria should be acknowledged before making any investment decisions within the gold mining sector.

Gold Stock Diversification
The same rule should apply with gold stocks. The least risky of the three are the gold producers. Investment in developers and explorers is higher risk but potentially higher return.

Gold mining companies themselves typically have a diversified portfolio of land holdings between exploration projects, development projects and production operations.

Gold Mine Longevity
Due to the fact that gold producers have revenue generating activities from economically recoverable gold, they need to be measured differently than the explorers. Longevity is an issue faced by all gold mining companies so it is crucial that a company maintains good exploration and/or development programs.

Gold Exploration
Gold companies need to be constantly exploring in order to establish new mines and maintain longevity.
Apart from acquisitions, successful exploration is the key to extending a gold producer's longevity and renewing reserves. Making use of existing infrastructure is therefore a huge for advantage for any gold producer.

Gold Mining Political Factors
Fact is, gold deposits are discovered and mined in all corners of the globe. Gold Hedging
Hedging has become a disadvantage for producers in this gold bull market. This is due to the huge opportunity cost in selling forward future gold production. Forward contracts with average prices below spot gold prices can lead to losses that ultimately penalize shareholders.

Gold producers are often forced to finance debt for the construction of a gold mine. Company Leverage
Leverage must be carefully and thoroughly examined for gold companies that produce gold and for those that are in the development and construction stages.

Gold Mine Cost Management
Cost management is crucial in the gold mining industry. In terms of gold production, the lower the cost per ounce of gold produced, the higher the profits will be.

The optimal gold mining stocks to invest in are those with very low cash costs and minimal hedging. Finding these stocks isn't always easy especially when operating costs have been rising in the gold mining industry.

Simply, if an ounce of gold costs less to produce than what it sells for at market, it can be classified as a reserve ounce. So as the price of gold continues to rise, lower-grade ore (i.e. ore with a lower gold content) becomes profitable to mine. Gold mining stocks offer investors excellent exposure and leverage to gold. 

The Gold Mining Index for the stock market has been getting some attention recently. With the emergence of ETF Exchange Traded Funds there is several ways to take advantage of rising gold prices.

There is the Market Vectors Gold Miners (NYSE: GDX) which roughly moves in lockstep with the spot gold futures market. The other is the Gold Double Long (NYSE: DGP) which is leveraged to move at double the percentage movement of spot gold.

The third point - the right shoulder - occurs when prices fall again but don't hit the low of the head. Prices then rise again once they have hit the low of the right shoulder. This occurs when the price of the stock, rising from the low point of the right shoulder moves up through the neckline.

There is NO such business. It takes people to build your business. You need to find those people to make your business grow and help them build businesses of their own.

Motivated people are probably 20% of the people you'll meet.
Many curious people may end up being customers in your business. FIND THE GOLD NUGGETS
Now get down to business. Make it a game to see who strikes gold first. The more you talk to people the more gold nuggets you'll discover.