article: the best gold stock to own ...

Here (below) is an excerpt from a US based "Street Authority"
(http://www.streetauthority.com/news/best-gold-stock-own-today).

Other than the three examples it gives could not be more different in scale from GBM, the article may be of interest in terms of the keys to Goldie valuation.

GBM's value of IGG (In Ground Gold) is $ 13.00 per ounce, (by market cap).

So what would it take for GBM's SP to perform in terms of reflecting a reasonable the value of IGG?

Under the existing leadership? ... TIME.

(errr ... AND would it be too much for the existing leadership to disclose their forecast cost of production?).

But even with time, under the existing leadership they will always struggle just to attain even an AVERAGE valuation (= @17 cents per share).

But I am gambling that they are capable of moving to the top of the bottom quartile ... this would be a 400% gain on the current SP to the range 7 to ten cents.

But who aspires only to move from the bottom of the heap up to the bottom 25%?

If these guys had any sense they'd fast track the wealth recovery process for shareholders by recruiting a proven leader.

Not a merchant banker, not a lawyer, not a property developer, and not a geologist.

The company has the fundamentals, including big potential for future discoveries that with proven leadership could have it rated in the top quartile of Gold Producers in terms of Share Price to IGG.

Will they ever have the sense and the guts to do it?

Excerpt from the Street Authority Article begins:

" ... The more ounces of gold that a company has in its proven and probable column, the more it should be worth. Updated annually, in 2009, Barrick Gold Corporation (NYSE: ABX) had 139,751,000 ounces of proven and probable gold in the ground, substantially more than Newmont Mining Corporation (NYSE: NEM), with 91,800,000 ounces and Goldcorp (NYSE: GG), with 48,470,000. With so much more gold in the ground, Barrick should be more valuable to investors.

If we take the enterprise value of the company, which represent's the company's value if it were to be acquired, divided by the number of proven and probable ounces in reserve, we can identify how the market values an ounce of the company's gold in the ground, known as Enterprise Value / Reserve Ounce (EVO). At the end of 2009, Goldcorp's reserves were valued at $63.18 per ounce, while Barrick's were less than half that number at $31.58, with Newmont achieving the lowest valuation at $27.39.

From this, you could imply that Newmont is the best opportunity, since the market places the lowest value on the gold it has in the ground.

But what about the cost to mine that gold?

Low cost producer
Remember, the market sets the price for gold -- not the mining companies. The companies that produce their gold at the lowest cost per ounce make more money.

Mining for gold is a capital, labor and energy-intensive business. According to the GFMS, a precious metals consultancy based in London, the average cost to produce an ounce of gold has risen above $500.

Most gold mines extract other metals and minerals found when they mine for gold. Copper and silver are the most common. According to the Gold Institute Production Cost Standard, the best way to measure what it costs for a company to produce an ounce of gold is to subtract out the price received from the sale of other metals, known in the industry as the Cash Cost (by-product).

For the trailing 12 months ending in September 2010, Goldcorp leads the way, with by-product costs of $317 an ounce, well below the average cost and that of its large competitors. This price is up from $295 for the 12 months ending in December 2009.

Barrick has a slightly higher cost per ounce of $346, down from $363 for all of 2009, on the strength of its copper production. Subtracting the sale of copper from the gold helps to lower production costs.

Newmont realized a cost of $478 an ounce, down from $526 an ounce for 2009. Newmont is benefiting from a rather large amount of copper by-product in its reserves. As copper prices expand with the economy, it will have a greater influence on a number of gold miners.

In this case, Goldcorp is the clear winner, with Barrick coming in second. Newmont will see its by-product cost for gold fall as it reaps the rewards of higher copper prices.

Valuing gold companies
As we have seen, the market value of a gold company's reserve varies significantly. Without going into detail, this depends largely on the cost to extract the gold from the ground. It also varies with the value investors place on other metals the company might have in reserve and produce. Putting these together gives us a simple way to compare gold mining companies ..... "

Hans Wagner
Disclosure: Neither Hans Wagner nor StreetAuthority, LLC hold positions in any securities mentioned in this article.
More from Hans