Red Back Vs. IAMGOLD Vs. Kinross Vs. Yamana Vs. Agnico-Eagle Vs. Eldorado

It’s a battle royale between 6 gold mining heavyweights. The objective, pick one company out of the six that has the best attributes in terms of valuation, the quality of the mines, and the geographic location. When I say the “quality of the mines”, that is a combination of criteria such as cash cost, the size of the mine, etc.

For the record, all 6 companies are solid, and in a gold stock bubble, all six should perform roughly the same. In other words, there are no dogs in this bunch, well, at least not yet. Who knows what the future really holds for them. So without further adieu, here are the 6 contestants.

Red Back Mining

Red Back only has two mines, but the mines keep getting bigger and bigger. Their Chirano mine achieved its first gold pour in late 2005. The exciting thing is gold mineralisation continues at depth, below the current open pit designs at many of the deposits currently included in the mine plan. Chirano could become a world class mine.

Tasiast started commercial production in 2007, and today it has over 5 million oz of gold in reserves and growing. Red Back projects this mine will produce over 500,000 oz of gold in a few years, double the current production rate.

Both mines are located in West Africa, which isn’t the most prime area to have a mine. According to the Fraser Institute Survey of Mining Companies, Western Africa ranks at just about average in terms of the best regions to mine.

At a market cap of $6.8 billion, Red Back shares aren’t exactly cheap right now. A lot of investors are assuming that both mines are going to become much larger than what is being projected by the company. As of right now, Red Back only is guiding for roughly 800,000 oz of gold production by 2012. Investors seem to think it will be over 1 million oz.

Red Back Mining’s Rating

• Valuation = C-
• Quality of Mines = B+
• Geographic Location of Mines = B-

IAMGOLD

IAMGOLD is in a transition period right now as a few of its mines have almost depleted their reserves. However, they are bringing a couple of projects online that will more than make up for these mine closures. IAMGOLD’s main focus right now is on three of its mines: Rosebel, Essakane, and Westwood. Rosebel is their flagship operation. Essakane just went into production and Westwood plans to start up in early 2013. Those three mines give IAMGOLD a 1 million ounce platform to build off of. The company also has several other projects that could significantly increase overall production in the next few years

IAMGOLD’s mines are spread out over the world, however they do have a concentration in Western Africa. The Westwood mine is located in Quebec, which is the best geographic location to mine according to the Fraser Institute Survey of Mining Companies. However, IAMGOLD’s other main project is located in Ecuador, the second worst geographic area according to the survey.

With a market cap of $6.3 billion, IAMGOLD is not that expensive here. There is still a lot of growth potential, and production could easily be over 1.5 million oz in 2-3 years.

IAMGOLD’s Rating

• Valuation = B+
• Quality of Mines = B
• Geographic Location of Mines = B-

Kinros Gold

Kinross is the largest company in this comparison. They have 8 mines in operation and several more in development. They are projecting 2.2 million oz of gold production for 2010. By 2014, they could be producing well over 3 million oz of gold per year once Cerro Casale, Lobo-Marte, and Fruta del Norte come into production.

The majority of Kinross’ current and future mines are located in the US and Chile, which both are in the top 10 in the overall rankings. Kupol, located in Russia, is the largest mine Kinross has in production. Russia ranks just below par in the rankings. Fruta del Norte is located in Ecuador, which as said before, ranks second to last in the survey.

At a market cap of $11.3 billion, Kinross is extremely undervalued. However, so are most of the companies in this comparison.

Kinross Gold’s Rating

• Valuation = B+
• Quality of Mines = A
• Geographic Location of Mines = B

Yamana Gold

Yamana Gold currently has 6 mines in production. It also owns 12.5% of Alumbrera, which provides a nice annual dividend for the company. They have 3 new mines coming online in the next 2 years, and a host of development projects in the works. It should be up to 1.5 million ounces of GEO production by the end of 2012.

Yamana’s mines are located mostly in Brazil and Chile. Chile ranks at the top of the survey and Brazil is just below average.

Yamana currently has a market cap of $7.3 billion. It does have an advantage in cash cost over a lot of other miners listed here since they use their copper production as a by product credit.

Yamana Gold’s Rating

• Valuation = A
• Quality of Mines = B+
• Geographic Location of Mines = B-

Agnico-Eagle Mines

Agnico-Eagle has 6 big/high quailty mines, each located in a mining friendly region, and each has a long mine life. Overall gold production will continue to steadily increase for the next few years, reaching 1.4 million oz of gold by 2013. They just purchased Comaplex Minerals’ Meliadine gold property in northern Canada, which is located just 186 miles from Agnico’s Meadowbank project. Meliadine holds a measured and indicated gold resource of 3.29 million ounces and inferred resources of 1.73 million ounces. This could easily become a 250,000 oz per year mine, which would give Agnico a nice boost in production.

Quebec is ranked #1 in the Fraser survey. 3 of Agnico-Eagles mines are located in Quebec. Finland ranks 3rd on the list, which is where Agnico’s Kittila mine is located. Their other two mines are located in Mexico and Nunavut(Canada).

Agnico currently has a market cap of $9.1 billion. With capital expenditures dropping significantly next year, the company is going to be producing some serious cash flow as they finally will be rewarded for the $2.5 billion they spent by bringing 5 new mines into production in the last few years.

Agnico-Eagle’s Rating

• Valuation = B+
• Quality of Mines = A
• Geographic Location of Mines = A+

Eldorado Gold

Eldorado Gold currently has 4 mines in production and 3 more coming online in the next few years. All of the mines are low cost and that gives Eldorado a real advantage when it comes to margins. By 2013, they will be producing about 1.1 million oz of Gold at an overall cash cost of roughly $300.

Eldorado Gold has a heavy concentration of mines in China and Turkey, which both rank around average according to the survey. Eldorado doesn’t have any mines located in higher ranked areas, which is going to hurt it somewhat in this comparison.

Eldorado currently has a market cap of $9.2 billion, which wouldn’t make it the most undervalued of the group. However, since their cash cost are so low and will actually decline in the next few years, the shares should trade at a premium.

Eldorado Gold’s Rating

• Valuation = B
• Quality of Mines = B+
• Geographic Location of Mines = C+

And the winner is….

Agnico-Eagle Mines

When you add it all up, Agnico-Eagle comes out on top. They are mining in the best regions of the world, with 3 of their mines in Quebec which ranks #1 in the Fraser survey. 5 out of 6 mines that Agnico operates were just brought into production in the past few years. All 6 of their mines have very long “life of mine”. While Agnico doesn’t have the cheapest valuation of the group, it is still a great bargain at current prices. And with capital expenditures now mostly out of the way, it is going to start producing some serious free cash flow in the next few years.

Kinross and Yamana were a close second. Kinross probably could have come out on top but the location of their largest mine in production, as well Fruta del Norte being located in Ecuador, hurt them in the rankings slightly. If you could guarantee me that Fruta del Norte would come into production without any issues then Kinross is the overall winner here. Yamana has the best valuation of the bunch, but the quality of a couple of their mines(compared to Agnico) as well as the geographic location brought them down a little.

Like I said at the beginnning of the article, all 6 of these companies are pretty solid. And all should do well if/when the Gold Bubble hits.

Click here for the Goldstocksdaily.com review of Agnico-Eagle Mines.