If you’re looking to invest in gold, there are various ways to do so. You could buy physical gold bars, but that is very costly. You could also buy an exchange-traded fund. A third option is to purchase the common shares of gold producers.
This last one is tricky because there are so many gold producers with operational problems. If you’re just looking to bet on gold, you probably don’t want to deal with those other issues.
Fortunately, there are some gold companies that have done a very good job over the years. Below I highlight three.
1. Goldcorp Inc.
While other gold companies like Barrick Gold Corp. and Kinross Gold Corporation were expanding over-aggressively, Goldcorp Inc. (TSX: G)(NYSE: GG) was more prudent. As a result, its balance sheet never got stretched too far. The company had less than $2 billion in net debt at the end of last year. Meanwhile, Barrick had over $10 billion.
This balance sheet strength helped Goldcorp pursue Osisko Mining Corp earlier this year. Even though its takeover effort was ultimately unsuccessful, it does show that Goldcorp is able to pursue a deal when it sees a bargain. Other miners don’t have that luxury.
2. Agnico Eagle Mines Ltd
Agnico Eagle Mines Ltd (TSX: AEM)(NYSE: AEM) has been another best-in-class operator, and last year was a perfect example. Despite an unfortunate gold price environment that hurt everyone in the industry, Agnico was able to meet or exceed production targets, all while cutting costs. Like Goldcorp, the company has enough flexibility to actually grow production.
Interestingly, Agnico was one of the two companies, along with Yamana Gold Inc., that ended up taking over Osisko. The move will help Agnico become even more efficient since it already operates mines in Quebec, which can now be run alongside Osisko’s Canadian Malartic mine.
Agnico has one other advantage over most gold miners: a lack of geopolitical risk. Its mines are located in Canada, Finland, and Mexico, all countries with healthy economies and business-friendly governments.
3. Franco-Nevada Corporation
Technically speaking, Franco-Nevada Corporation (TSX: FNV)(NYSE: FNV) is not a gold producer like Goldcorp or Agnico. Rather, it signs royalty agreements with gold producers. In these agreements, Franco makes upfront payments to help a miner finance a new project in exchange for royalty payments in subsequent years.
These royalty agreements save Franco-Nevada the headaches that afflict producers. For example, it doesn’t have to build mines or deal with the inevitable setbacks. It also doesn’t have to deal with cost inflation. Finally, it doesn’t have to deal with tax increases from hostile governments.
Thus, before you buy a gold producer, you may want to consider this company instead.