There are numerous gold mining companies out there ranging from independent family run mining companies to mega corporations that make billions of dollars annually. However, how gold companies are ranked is dependent on a few different gauging methods. Primarily most companies are ranked based on their annual production; however this may not be the best criteria to gauge a company’s stability or market positions as many companies are known to manipulate the production figures based on gold spot prices.
The best method for gauging a gold mining’s company is to assess their overhead cost to produce a single ounce of gold. This is due to the fact that the prices of gold are standardized worldwide and thus, the lesser their cost for mining an ounce of gold, the more profit they make. Another common approach to assess a gold mining company’s stability is to evaluate the total capital holdings of that company and compare that to other companies of similar size. This is very important as a larger company would look much better when placed beside a smaller company in terms of figures, when the actual fact would be that the smaller company would be more profitable.
If it so happens that you would like to compare companies that are of different sizes (for example a large company against a SME) then the best method to approach the assessment is via using financial ratios such as ROI (Return on Investment), ROE (Return on Equity), Liquidity Ratio and ROA (Return on Assets). However there are 3 giants among the mining companies of the world and they are Fresnillo, Buenaventura and Freeport-McMoran, however they are more dependent on mining other precious metals such as silver more than they are on gold.
The low price of gold is starting to affect gold mining companies worldwide due to the increasing cost of production and the stagnant price of gold. Many analysts attribute the decline in gold production by 50 tons to this fact. Even Barrick Gold has been sluggish over the past few quarters – as sluggish as the price of gold.
Based on these factors, it would actually be a good time to invest in gold as analysts are predicting that the recent changes in Indian law that allows the import of Gold into India and China would stir demand and when the law of demand and supply takes over coupled with the increased cost of production, gold prices are bound to rally.
So, in plain words, if ever there was a time to invest in gold or gold related industries – the time is now!