The company also expects to produce 5.0 million to 5.2 million ounces of gold in 2012, which is comparable to the 5.2 million ounces it produced in 2011. However, due to rising power and labour costs at its Australian mines, its gold-production costs will jump to between $625 and $675 an ounce from $592 in 2011.

Newmont’s long-term outlook remains bright. Concerns over European sovereign debt should continue to spur gold prices. Copper prices should also rebound in 2012, as global consumption will probably exceed production.

Newmont is still a buy.

The company now expects to produce 1.2 million to 1.3 million ounces in 2012, up 13% from 2011. Most of the increase will come from Yamana’s Mercedes mine in Mexico, which started up in November 2011.

As the company starts up more new mines, its production will continue to increase: in 2013, production should rise 43% from 2011 levels, to between 1.5 million and 1.7 million ounces. In 2014, that figure should climb to around 1.75 million ounces.

Yamana Gold is still a buy.

Newmont gets about 90% of its revenue from gold. It gets the remaining 10% from copper, zinc and other metals. Most of Newmont’s copper comes from its 27.56% stake in the large Batu Hijau mining complex in Indonesia. Combined with financing arrangements the company has with other Batu Hijau shareholders, Newmont’s economic interest in this mine is effectively 44.56%.

The company prefers to sell its gold at the market price instead of through long-term hedging contracts that lock in prices. This policy has helped it take full advantage of rising gold prices: Newmont’s average realized gold price jumped 105.7%, from $594 an ounce in 2006 to $1,222 in 2010.

As a result, the company’s revenue rose 91.3%, from $5.0 billion in 2006 to $9.5 billion in 2010. Revenue will probably reach $10.8 billion in 2011.

Newmont unwound its remaining gold hedges in 2007. That caused its earnings to fall 82.1%, from $1.40 a share (or a total of $632.0 million) in 2006 to $0.25 a share (or $113.0 million) in 2007. However, earnings jumped 1,428.0%, to $3.82 a share (or $1.9 billion), in 2010.

Cash flow per share fell 36.9%, from $2.82 in 2006 to $1.78 in 2007, but rose 225.8%, to $5.80, in 2010.

Production to rise 35% in five years

Newmont aims to increase its annual gold production to 7 million ounces by 2017. That’s roughly 35% higher than its expected 2011 production of 5.1 million to 5.3 million ounces.

To that end, Newmont bought Fronteer Gold Inc. for $2.3 billion in April 2011. Fronteer’s main asset is its Long Canyon gold project in Nevada. Long Canyon is still in the development stage, but Newmont feels this property can produce 300,000 ounces of gold a year starting in 2017. Moreover, Long Canyon is near Newmont’s existing gold-processing operations in Nevada. That should help keep its operating costs down.

The company is also building new mines and expanding its existing properties. For example, it recently started building a mine in Ghana that should increase its overall production by 350,000 to 450,000 ounces a year. This new mine should start up by early 2014 and is expected to last 16 years. Newmont also plans to finish expanding its Tanami mine in Australia in 2014. That will add a further 60,000 to 90,000 ounces to its annual production.

Another project with strong long-term potential is Newmont’s 51.35%-owned Conga gold/copper mine in Peru. This mine could produce up to 350,000 ounces of gold per year.

Protests could delay new mine

To build the Conga mine, Newmont will have to divert water from four lakes and build reservoirs. This has sparked increasingly violent demonstrations that may force the company to redesign the project to reduce its impact on nearby areas. As a result, Newmont may have to push back the mine’s opening past its planned 2015 start-up date.

Newmont’s new projects will push up its production costs per ounce, at least initially. However, its costs should fall as it works out the inevitable problems that arise with all new mines.

The company’s strong balance sheet gives it plenty of room to keep building new mines. Its $3.7 billion of long-term debt is a low 12% of its market cap. It holds cash of $2.1 billion, or $4.31 a share.

The company will probably earn $4.45 a share in 2011. The stock trades at 13.7 times that estimate. It also trades at a reasonable 8.5 times Newmont’s projected cash flow of $7.15 a share.

In 2012, the company’s earnings could jump to $6.00 a share. The stock trades at just 10.2 times that figure. It also trades at 8.1 times Newmont’s likely 2012 cash flow of $7.50 a share.

Dividend-gold price link a nice bonus

The company now links future dividend hikes to the price of gold: it will raise the quarterly rate by $0.05 a share for each $100-per-ounce rise in its average selling price for gold in the preceding quarter.

As well, if gold prices exceed $1,700 an ounce, it will raise the quarterly dividend by an additional $0.025 a share, for a total increase of $0.075 a share. If gold prices rise above $2,000 an ounce, Newmont will raise the dividend by an additional $0.05 a share, for a total increase of $0.10 a share.

The company recently raised its quarterly dividend by 16.7%, to $0.35 a share from $0.30. The new annual rate of $1.40 yields 2.3%.

Newmont Mining is a buy.

We continue to recommend that you focus your gold investing on gold-mining stocks and avoid buying gold bullion, gold coins (unless you collect them as a hobby) or certificates representing an interest in bullion. That’s because these investments have hidden costs, such as insurance and storage, that dramatically cut their value over time.

Newmont remains our top choice among gold stocks. Most of its production comes from politically stable areas, such as North America and Australia. As well, its new dividend policy gives investors an opportunity to automatically profit when gold prices rise.

NEWMONT MINING CORP. $61 (New York symbol NEM; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 494.8 million; Market cap: $30.2 billion; Price-to-sales ratio: 3.3; Dividend yield: 2.3%; TSINetwork Rating: Average; www.newmont.com) is one of the world’s largest gold-mining companies. It has major mines in the U.S., Australia and Peru.

Newmont gets about 90% of its revenue from gold. It gets the remaining 10% from copper, zinc and other metals. Most of Newmont’s copper comes from its 27.56% stake in the large Batu Hijau mining complex in Indonesia. Combined with financing arrangements the company has with other Batu Hijau shareholders, Newmont’s economic interest in this mine is effectively 44.56%.

The company prefers to sell its gold at the market price instead of through long-term hedging contracts that lock in prices. This policy has helped it take full advantage of rising gold prices: Newmont’s average realized gold price jumped 105.7%, from $594 an ounce in 2006 to $1,222 in 2010.

As a result, the company’s revenue rose 91.3%, from $5.0 billion in 2006 to $9.5 billion in 2010. Revenue will probably reach $10.8 billion in 2011.

Newmont unwound its remaining gold hedges in 2007. That caused its earnings to fall 82.1%, from $1.40 a share (or a total of $632.0 million) in 2006 to $0.25 a share (or $113.0 million) in 2007. However, earnings jumped 1,428.0%, to $3.82 a share (or $1.9 billion), in 2010.

Cash flow per share fell 36.9%, from $2.82 in 2006 to $1.78 in 2007, but rose 225.8%, to $5.80, in 2010.

Production to rise 35% in five years

Newmont aims to increase its annual gold production to 7 million ounces by 2017. That’s roughly 35% higher than its expected 2011 production of 5.1 million to 5.3 million ounces.

To that end, Newmont bought Fronteer Gold Inc. for $2.3 billion in April 2011. Fronteer’s main asset is its Long Canyon gold project in Nevada. Long Canyon is still in the development stage, but Newmont feels this property can produce 300,000 ounces of gold a year starting in 2017. Moreover, Long Canyon is near Newmont’s existing gold-processing operations in Nevada. That should help keep its operating costs down.

The company is also building new mines and expanding its existing properties. For example, it recently started building a mine in Ghana that should increase its overall production by 350,000 to 450,000 ounces a year. This new mine should start up by early 2014 and is expected to last 16 years. Newmont also plans to finish expanding its Tanami mine in Australia in 2014. That will add a further 60,000 to 90,000 ounces to its annual production.

Another project with strong long-term potential is Newmont’s 51.35%-owned Conga gold/copper mine in Peru. This mine could produce up to 350,000 ounces of gold per year.

Protests could delay new mine

To build the Conga mine, Newmont will have to divert water from four lakes and build reservoirs. This has sparked increasingly violent demonstrations that may force the company to redesign the project to reduce its impact on nearby areas. As a result, Newmont may have to push back the mine’s opening past its planned 2015 start-up date.

Newmont’s new projects will push up its production costs per ounce, at least initially. However, its costs should fall as it works out the inevitable problems that arise with all new mines.

The company’s strong balance sheet gives it plenty of room to keep building new mines. Its $3.7 billion of long-term debt is a low 12% of its market cap. It holds cash of $2.1 billion, or $4.31 a share.

The company will probably earn $4.45 a share in 2011. The stock trades at 13.7 times that estimate. It also trades at a reasonable 8.5 times Newmont’s projected cash flow of $7.15 a share.

In 2012, the company’s earnings could jump to $6.00 a share. The stock trades at just 10.2 times that figure. It also trades at 8.1 times Newmont’s likely 2012 cash flow of $7.50 a share.

Dividend-gold price link a nice bonus

The company now links future dividend hikes to the price of gold: it will raise the quarterly rate by $0.05 a share for each $100-per-ounce rise in its average selling price for gold in the preceding quarter.

As well, if gold prices exceed $1,700 an ounce, it will raise the quarterly dividend by an additional $0.025 a share, for a total increase of $0.075 a share. If gold prices rise above $2,000 an ounce, Newmont will raise the dividend by an additional $0.05 a share, for a total increase of $0.10 a share.

The company recently raised its quarterly dividend by 16.7%, to $0.35 a share from $0.30. The new annual rate of $1.40 yields 2.3%.

Newmont Mining is a buy.

In the three months ended September 30, 2011, Yamana’s revenue rose 22.3%, to $555.2 million from $454.0 million a year earlier (all figures except share price and market cap in U.S. dollars). Cash flow per share rose 57.1%, to $0.44 from $0.28.

The company raised its production by 4.4% during the quarter, to 279,274 ounces of gold from 267,409 a year earlier. As well, record-high gold prices pushed up Yamana’s selling price for gold by 37.4%.

The company holds a high cash balance of $570.5 million, or $0.76 a share. Its $430.9 million of debt is just 4.0% of its market cap. Thanks to the improved results, Yamana raised its dividend by 11.1% with the January 2012 payment, to $0.20 from $0.18. The shares now yield 1.3%.

Yamana likely produced 1.04 million to 1.14 million ounces of gold in 2011. By 2014, new mines at its Mercedes project in Mexico and its three development properties should raise that to 1.7 million ounces.

Yamana Gold is still a buy.

NEW GOLD $10.11 (Toronto symbol NGD; TSINetwork Rating: Speculative) (888-315-9715; www.newgold.com; Shares outstanding: 456.5 million; Market cap: $4.6 billion; No dividends paid) has three operating mines: the Mesquite mine in the U.S., the Cerro San Pedro mine in Mexico and the Peak mine in Australia. It also owns 30% of the El Morro copper/gold project in Chile (Goldcorp owns the other 70%) and 100% of the New Afton gold/copper/silver project in B.C.

El Morro contains an estimated 4.7 million ounces of gold and 3.7 billion pounds of copper. New Afton holds 2.7 million ounces of gold, 2.5 billion pounds of copper and 8.3 million ounces of silver.

In June 2010, New Gold bought Richfield Ventures (symbol RVC on Toronto) for $550 million of New Gold shares (all figures except share price and market cap in U.S. dollars).

Richfield owns the Blackwater property in central B.C., 450 kilometres north of New Afton . This property holds up to 6.8 million ounces of gold. After New Afton starts up in mid-2012, New Gold aims to use the same workers to build a mine at Blackwater.

New Gold likely produced 380,000 to 400,000 ounces of gold in 2011. The New Afton mine will add over 85,000 ounces of gold and 75 million pounds of copper a year.

The company reported cash flow of $0.13 a share in the three months ended September 30, 2011. That’s up 18.2% from $0.11 a share a year earlier

New Gold’s $241.1 million of long-term debt is just 5.2% of its market cap. It holds cash of $433.1 million, or $0.95 a share. That gives it lots of funds to further develop its mines and make acquisitions.

New Gold is a buy.

Eldorado Gold, symbol ELD on Toronto, and Centerra Gold, symbol CG on Toronto, are rumoured to be interested parties.

We’ve said for some time that European Goldfields could become a takeover target as its new mines move toward production. That’s even more of a possibility now, after its recent financing deal with Qatar Holdings LLC, a division of Qatar’s sovereign wealth fund, to develop its mines in Greece and Romania. These mines should let the company produce around 400,000 ounces of gold a year by 2014.

The chance of a takeover adds appeal, but it’s not reason enough to buy the stock. However, the prospect of rising production and cash flow gives European Goldfields strong long-term prospects.

European Goldfields is still a buy.

Qatar Holdings has given European Goldfields a seven-year, $600 million U.S. loan. In addition, Qatar Holdings is buying a 9.9% stake in European Goldfields from Greek building firm Aktor Construction.

European Goldfields will also issue warrants to Qatar Holdings that give it the option to increase its stake to about 29%. If it exercises these warrants, European Goldfields would get an additional $366.8 million.

Aside from funding, these investments give the company a major partner with a stake in the development of its mines.

European Goldfields is still a buy.

The company has now enhanced this policy. If gold prices exceed $1,700 an ounce, it will raise the quarterly dividend by an additional $0.025 a share, for a total increase of $0.075 a share.

If gold prices rise above $2,000 an ounce, Newmont will raise the dividend by an additional $0.05 a share, for a total increase of $0.10 a share.

The company last paid a quarterly dividend of $0.30 a share on September 29, 2011. The implied annual rate of $1.20 yields 1.9%.

Gold stocks: Even with gold prices down, new policy offers opportunity for profit

Gold prices have moved down from their peak of $1,918 an ounce in August 2011 to today’s price of $1,626. Still, this gold stock’s new policy gives investors an opportunity to automatically profit when gold prices rise.

In the second quarter, the gold stock’s attributable net income from continuing operations rose 37% over the same period a year ago. At that time, the board of directors approved a gold price-linked dividend hike of 50%, to $0.30 a share.

We updated our advice on Newmont Mining in our September 30, 2011, Wall Street Stock Forecaster hotline, You can view it immediately when you take a 1-month free trial to Wall Street Stock Forecaster, our newsletter written especially for Canadians interested in U.S. stocks with a substantial margin of safety. Click here to get started right away.

(Note: If you are a current Wall Street Stock Forecaster subscriber, please click here to view Pat’s recommendation. Be sure to log in first.)

The company has now enhanced this policy. If gold prices exceed $1,700 an ounce, it will raise the quarterly dividend by an additional $0.025 a share, for a total increase of $0.075 a share.

If gold prices rise above $2,000 an ounce, Newmont will raise the dividend by an additional $0.05 a share, for a total increase of $0.10 a share.

The company last paid a quarterly dividend of $0.30 a share on September 29, 2011. The implied annual rate of $1.20 yields 1.9%.

Gold prices have moved down from their peak of $1,918 an ounce in August 2011 to today’s price of $1,626. Still, this new policy gives investors an opportunity to automatically profit when gold prices rise.

Newmont Mining is a buy.

In the three months ended June 30, 2011, Yamana’s revenue jumped 63.1%, to $573.3 million from $351.4 million a year earlier (all figures except share price and market cap in U.S. dollars). Cash flow per share rose 69.2%, to $0.44 from $0.26.

The company raised its production, and gold prices hit new record highs. During the quarter, Yamana produced 278,737 ounces of gold, up 10.1% from 253,264 ounces a year earlier. Its selling price for gold rose 25.6%.

Yamana holds a high cash balance of $520.9 million. Its $459.9 million of debt is just 3.8% of its market cap.

The company expects to produce 1.04 million to 1.14 million ounces of gold this year. By 2014, new production from its four development properties should increase that figure should to 1.7 million ounces.

Yamana Gold is still a buy.

IAMGOLD $21.49 (Toronto symbol IMG; TSINetwork Rating: Speculative) (1-888-464-9999; www.iamgold.com; Shares outstanding: 376.5 million; Market cap: $8.2 billion; Dividend yield: 0.9%) sold its Mupane mine in Botswana for $34.2 million in September 2011 (all figures except share price and market cap in U.S. dollars). Earlier this year, IAMGold sold its 18.9% stake in the Tarkwa and Damang gold mines in Ghana to South African mining giant Gold Fields Ltd. for $667 million in cash.

The sales leave IAMGold with 38% of the Sadiola mine and 40% of the Yatela mine, both located in Mali; 90% of its new Essakane gold mine in Burkina Faso, 100% of the Doyon mine in Quebec; and 100% of the Rosebel mine in Suriname, South America.

IAMGold also has a 1% royalty interest in the Diavik diamond mine in the Northwest Territories.

As well, the company also owns the Niobec niobium mine in Quebec. Niobium is a rare metal that when used as an additive makes steel stronger, more heat resistant and easier to weld.

In the three months ended June 30, 2011, IAMGold’s revenue rose 74.5%, to $345.7 million from $198.1 million. Gold production rose, partly because the Essakane mine started up in late 2010. Higher gold prices also increased revenue. Cash flow almost doubled, to $0.40 a share from $0.22 a share a year earlier.

The company now holds over $1.2 billion U.S. in cash and gold bullion. That gives it lots of options to spur its share price. For example, it could raise exploration spending, make an acquisition, pay dividends or buy back shares.

Earlier in 2011, the company teamed up with Chinese state-owned China National Gold Group Corporation to find and develop new deposits. The agreement is significant, because China National Gold is China’s biggest gold producer. The deal could also lead China National Gold to make a takeover offer for IAMGold.

IAMGold is still a buy.