first majestic silver

Filet Mignon & Gold

May 16, 2000

One of the best ways to evaluate any stock is to compare salient characteristics with those of the same class. If one is to determine if a particular stock is dearly priced or is cheap, just compare it with its peers to put it into perspective. Although the following comparison is certainly not an analysis de rigueur, it does indeed provide a starting point for appreciating the relative stock value of a few major world-class gold mining companies.

Size of a Gold Mining Company

There is much confusion as to what characteristics help delineate the "size" of a gold mining company. I have personally asked this question of several top-execs of a few major gold mining companies. Naturally, there were sundry opinions as to what determines the "size" of a gold mining firm. However, there seemed to be one common denominator among most answers. The preferred answer of most of the respondents seemed to coincide with the forte of their own particular company. That is to say if Company ABC demonstrates a very high market cap (due primarily to an exaggerated P/E ratio), then inevitably, the top-exec of that company feels "market cap" should be the determining factor for denoting size. Frankly, I do NOT agree.

Most analytical and rational investors could give a hoot about the total market cap of a prospective investment -- especially an investment in a gold mining stock. The market cap of a gold mining company is not vital data in determining relative value. Rather, an objective investor seeking the relative safety of investing in a large gold mining company vis-à-vis a smaller one, will look to the Cardinal Characteristics: Annual gold production, and; Proven and Probable Reserves.

Indubitably, the analytical and rational investor wants to know if he is getting the biggest bang for his buck. On this basis, let's look at a few of the elephant gold producers. Let's compare the two largest South African gold mining giants (Anglogold and Gold Fields Ltd) vs the three North-American behemoths (Barrick Gold, Newmont Mining and Placer Dome).

Gold Company Annual Prod P&P Reserves
Gold Fields Ltd
Newmont Mining
Barrick Gold
Placer Dome
7.9 mill oz/yr
4.0 mill oz/yr
4.0 mill oz/yr
3.7 mill oz/yr
2.9 mill oz/yr
126 million oz
74 million oz
57 million oz
59 million oz
66 million oz

Conclusions Gleaned from the Numbers

Without question Anglogold is world's largest gold mining company based on Annual Production and Proven & Probable Reserves. Second Place goes to Gold Fields Ltd. Even though Newmont Mining has equal yearly gold production, the tie-breaker is gold reserves. Gold Fields Ltd has 30% more Proven & Probable gold reserves than its North-American rival, Newmont Mining. Next to last is Barrick Gold - and bringing up the rear is Placer Dome.

The above should settle the question ONCE AND FOR ALL of WHO is the largest and 2cd largest gold mining companies in the world (Symbols AU and GOLD). Both Out Of Africa.

To be sure, the most meaningful comparison is the determination of what a smart and astute investor has to pay to 'acquire' each company's annual gold production (Cost Prod) and proven and probable reserves (Cost PP). After all, that is what you are getting when you buy their shares. So the crucial question is, "How Much Is An Investor Paying per ounce for yearly production and per ounce for gold reserves?" The following table demonstrates startling results, which this analyst never suspected…and for that matter has heretofore never been made public -- and most likely has escaped the eyes of many mutual fund portfolio managers. (Please be advised the data source for all numbers is the Internet's CBS-MarketWatch as of market close on 12 May 2000)

Gold Company No. Shares Market Cap Cost Prod Cost PP
Gold Fields Ltd
Newmont Mining
Barrick Gold
Placer Dome
196 million
448 million
168 million
396 million
325 million
$3900 million
$1500 million
$4200 million
$7200 million
$2800 million
$ 494/oz
$ 375/oz
$ 966/oz
$ 31/oz
$ 20/oz
$ 74/oz
$ 42/oz


  • Barrick Gold has the largest market cap of this comparison group
  • Gold Fields Ltd has the smallest market cap of this comparison group
  • Barrick Gold shares are the MOST EXPENSIVE based on annual prod
  • Gold Fields Ltd shares are the LEAST EXPENSIVE based on annual prod
  • Barrick Gold shares are the MOST EXPENSIVE based on cost of reserves
  • Gold Fields shares are the LEAST EXPENSIVE based on cost of reserves


In the considered opinion of this analyst, Market Cap (number of outstanding shares times stock price) is decidedly NOT a correct measure of the "size" of a gold mining company. For individual investment purposes, market cap is as relevant and significant as the color of the Corporate Secretary's dress on any given Friday.

Any rational and objective investor needs to look at the price he is paying for current production, and his cost of acquiring future production (i.e. proven & probable reserves). Admittingly, this is an over-simplification of the in-depth Analytical Studies employed by the legions of Brokerage House analysts. Nonetheless, it provides all investors a quick measuring stick to easily determine the relative expensiveness of a particular gold mining company. In this last regard, this analyst asserts without reservation that an investor gets the BIGGEST BANG FOR HIS BUCK by buying Gold Fields Ltd (symbol GOLD).

(Symbols: Anglogold - AU; Newmont - NEM; Barrick - ABX; Placer - PDG)

Gold Fields Ltd Comparisons

  • Based on annual production AU is 1.3 times more expensive than GOLD
  • Based on annual production ABX is 5.2 times more expensive than GOLD
  • Based on annual production NEM is 2.8 times more expensive than GOLD
  • Based on annual production PDG is 2.6 times more expensive than GOLD
  • Per P&P reserves AU is 1.6 times more expensive than GOLD
  • Per P&P reserves ABX is 6.1 times more expensive than GOLD
  • Per P&P reserves NEM is 3.7 times more expensive than GOLD
  • Per P&P reserves PDG is 2.1 times more expensive than GOLD

It does not take the genius of a rocket scientist to come to the blaring conclusion that Gold Fields Ltd is BY FAR the best investment for the money. By purchasing a share of GOLD, one is paying only a mere $20 per oz for proven and probable gold reserves. It is overtly evident that this is a basement bargain vs the actual bullion price of $277/oz (as of 12 May 2000).

In a nutshell, Gold Fields Limited is the second largest gold producer in the world, with annual production in excess of 4 million ounces, proven and probable reserves of 74 million ounces - and resources of 152 million ounces. Gold Fields Limited trades on the Johannesburg Stock Exchange (GFI), as well as on Nasdaq (GOLD) and on the London, Paris, Brussels, and Swiss stock exchanges.

At Friday's close at less than 3-1/2 bucks per share, GOLD is selling for the value of a CheeseBurger at McDonald's. Methinks a single GOLD share will in the not too distant future be valued at the price of a Filet Mignon dinner at the Four-Seasons Restaurant in Manhattan, New York.

Two last salient comments. Gold Fields Ltd will not remain for long the secret of the gold mining industry. Personally, I believe Gold Fields Ltd will soon attain the market cap of its much more expensive and oft touted industry brothers from North-America.

Gold is the official state mineral of Alaska.
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