The Best Gold Stock Now

There is no such thing as a disbelief that investors flock to gold as a safe haven hedge in the course of times of political and/or else economic distress and insecurity. And up awaiting recently, the economic background was about as bad the way it could obtain. Moreover, with the printing presses presently running overtime to fund formidable government spending, a weaker dollar plus runaway inflation may be on the horizon.

Instead of just investing in physical gold, people who actually need to safeguard their portfolios have to look at gold miners. My perfect most wanted miner is Goldcorp , based out of Vancouver, Canada. It is one of the world's biggest and highest gold producers. The rigid operates more or less a 12 mines, most of that are located in Canada, Mexico as well as Central America. Those places contain more than forty five million ounces of tested as well as probable gold reserves, along with 1.2 billion ounces of silver and large quantities of copper, lead and zinc.

What Makes Goldcorp the Best Gold Play Out There? Similar to every commodity producers, Goldcorp has nothing pricing authority and easily must allow anything the marketplace is willing to pay. On that front, this company isn't different than its competitors. Though, there are more things that come into play...

When evaluating a possible investment on this sector, there is 5 major queries that should be asked:

1) What quantity of gold is this company sitting on? 2) Is its reserve base shrinking or rising? 3) Place where the mines located? 4) What are its extraction expenses? 5) Is production hedged or unhedged?

Let us begin with the first. With forty five million ounces waiting to be dug up, Goldcorp is the perfect size -- large enough to have reliable returns, but still quick enough for future production increase to really add up.

Better still, as a few organizations are facing a decreasing supply, Goldcorp is rapidly exchanging anything gold it digs up. In fact, reserves have grown steadily superior for 5 consecutive years.

Next, it pays to consider where a firm's mines and exploration projects are located -- those in several areas of Africa, let's say, carry considerable geopolitical risk plus stifling labor expenses. Fortunately, almost three-fourths of the Goldcorp's reserves are in steady NAFTA countries.

Of course, price is arguably an important of variables. Clearly, if all producers are paid similar price for their gold, then the winners are those who be able to dig it up for a smaller amount. There too, Goldcorp arrives out ahead of pack.

Actually, this company can get gold from the bottom to marketplace for a complete money price of just $305 for every ounce. Others such as Western Goldfields plus Anglo Gold pay closer to $500 per ounce. As the low-cost producer, Goldcorp rakes in much fatter profits for every ounce bought -- and it will vend over 2.3 million ounces this year.

Finally, some companies choose to hedge their production, that may protect against falling rates, but tends to put a ceiling on earns when gold is growing. Goldcorp is unhedged, which means the company can be completely leveraged plus profit the most profit from more powerful bullion.

By passing each five tests with flying colors, Goldcorp is obviously the industry's best-positioned major gold producer. Goldcorp has come a long way in a quick period of time. Just a few years ago, this company just owned a single quarry, although that specific location (Red Lake) remains the biggest gold mine in Canada and the world's richest while it comes to ore concentrations. However recent acquisitions contain changed Goldcorp into a major player.

From 2004, revenues contain soared 13-fold, jumping from lower than $200 million to nearly $2.5 billion. From that same period, earnings, money flow and gold reserves are up +107%, +149%, plus +251% respectively, on a per-share basis. However Goldcorp's best days remain ahead.

There's actually only 2 methods for any gold producer to spice up revenues: sell extra gold or get the best value for it. I'm sure we will see a combination of both, however let's focus on the one feature that Goldcorp can control -- production rates.

Over the past 3 years, Goldcorp's reserves have more than tripled, climbing from lower than 15 million to greater than 45 million ounces. Meanwhile, the company can also be pushing ahead with five advance projects that may arrive on-line over the next few years. More promising is Mexico's Penasquito mine, one of the biggest valuable metals discoveries in all North America. The location includes over 17 million ounces of gold and more than 1 billion ounces of silver, plus commercial production is slated to begin next January.

Thanks in part to the present plus new projects in pipeline, Goldcorp's forthcoming production development will greater than two times that referring to competitors like Barrick and Newmont .

In fact, administration is planning to boost yearly production over 2.3 million to 3.5 million ounces within the next 5 years. That +50% surge is unrivaled in industry tending to lead to better growth charges for shareholders.

Goldcorp has all-time low costs around (using a profit margin of $630 for every ounce sold) plus by far the industry's strongest expansion report. Plus, it also has a typical net positive cash balance, with from $260 million in cash by the books and nil debt.

I'm positive the ingredients are locate for this company to mix out sustainable money flows of $1 billion yearly over the following five years. In time, the shares must return back around to lower $50s, which implies upside potential around +50% from here.

All of this government spending may slowly but certainly drag us out of the problem plus inflation would not exist far behind. When things worsen, gold will still do fine. Not surprisingly, gold was the single best performing asset class in 2008. Gold spot prices have recently leaped previous future expenditure (an remarkable event generally known as backwardation) for the first time ever. This is a mirrored picture of the increasing current demand for physical gold and widely interpreted like a prelude to a stronger upward move.

Aside from these near-term catalysts, you can find reasons to become bullish longer-term as well. First, the world's 400 commercial gold mines only manufacture about 2,500 tons of the metal per year, but the world uses over 3,500 tons. And whereas production has steadily shrunk since 2001, demand continues growing (there are still signs that numerous central banks are looking to risen their gold reserves).

Remember, even at spot prices over $1200 an ounce, gold remains to be sitting on just half the level reached during the last increase in early 1980s -- after it spiked to $2,186 in present money. In the past, people couldn't sell their jewels and other gold fast enough. This time more or less, it's now the substitute -- purchasing is so fast that widespread retail shortages are reported.

If you are looking to amplify your contact with growing gold prices, why don't you go right to source? When gold rates are moving around, shares of gold producers such as Goldcorp typically act like bullion on steroids.


Article Source: FxTradingStock.com

About the Author

Gold Market Monitor is a subscription based membership site that uses an exclusive gold timing strategy. It shows its members the best time to invest in gold bullion or gold stocks and when to exit to the safety of cash. Try the Gold Market Monitor for 60-days and safely profit from up and down trends in the gold market.

by: Greg Matthews

Total views: 49 Word Count: 1205 Date: Thu, 1 Jul 2010

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