HardAssetsInvestor

Written by By Amine Bouchentouf  |

February 06, 2012

The Commodity Investor: 3 Gold Mining Companies Poised for Performance In 2012

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New Gold, Gabriel Resources and AngloGold offer investors value and growth opportunities.

In the first installment of this series, I analyzed why gold stocks underperformed relative to gold bullion in 2011 across all categories. Mature gold companies, as measured by the Market Vectors Gold Miners ETF (NYSE: GDX), underperformed bullion by 26 percent, while junior gold companies as represented by the Market Vectors Gold Junior Miners ETF (NYSE Arca: GDXJ) underperformed by 37 percent.

The main reasons are: shrinking profit margins due to rising capital expenditure costs for miners across the board; and the fact that mining companies got caught up in the global stock market sell-off of 2011. In this context, I believe there are some gold companies that will outperform the broader market in 2012.

New Gold

New Gold (NYSE: NGD) is a company I have been recommending to investors for several years now. The company has not disappointed, with a return of more than 1,000 percent between November 2008 and today. The turnaround was spearheaded by the installment of new management, which saw Randall Oliphant, previously CEO of Barrick Gold (NYSE: ABX), take the helm at this junior miner.

In addition, NGD received serious support from some of the industry’s leading investors. Pierre Lassonde is a major shareholder and sits on the board; previously he was a major player in helping Newmont Mining (NYSE: NEM) become the second-largest gold miner in the world. With industry insiders at the helm, NGD quickly established itself as one of the leading junior miners in the industry.

NGD went from a company with negative cash flow and one producing assets, to a company operating in multiple global mining jurisdictions with positive cash flow generation and expanding net-income margins. Currently NGD has producing assets in Australia, Mexico and the United States, with new mines coming online in Chile and Canada.

In Canada, NGD owns the New Afton property, with more than 1.67 million ounces of gold, 5.28 million ounces of silver and 1.5 billion pounds of copper resources. In addition, NGD recently purchased the Blackwater Project in British Columbia, which is a promising and upcoming gold jurisdiction in Canada. Through this transaction, NGD acquired a property in excess of 23,000 hectares, with 2 million ounces of probable gold reserves and a large exploration upside.

The stock price got caught up in the selling frenzy of 2011 that gripped the mining sector, especially in the fourth quarter of the year. As a result, NGD looks fairly valued at the moment. The company’s fundamentals are robust and I expect the company to perform well in 2012.