Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Alix Steel appeared on NBR Tuesday to profile large-cap gold mining companies that could outperform their junior rivals in 2011. (Watch video and read transcript here.)
NEW YORK ( TheStreet ) -- Buying junior gold mining stocks was the sexy trend in 2010 but 2011 is shaping up to be the year of big reliable gold stocks.
As gold prices made record highs in 2010 and takeovers abounded, investors bought up shares of small gold explorers hoping to strike gold on the "next big thing." NovaGold (NG) rallied 125.79%, International Tower Hill (THM) jumped 53.6% and U.S> Gold (UXG) skyrocketed 211.6%.
While investors were distracted by merger madness, shares of the big gold companies waned.
(GG - Get Report) rallied only 13%, underperforming the gold price, and
(ABX - Get Report) was up 31.67%.
The gold world changed in 2011 and now it's a show me story. Miners have to live up to all their talk and actually produce the gold they promised, at low cash costs, and show that they can manage rising inflation. It's this wicked combo that is making Barrick Gold and Goldcorp potential winners.Both companies' hit fourth-quarter results out of the ballpark. Barrick earned 95 cents a share, producing 1.7 million ounces of gold at cash costs of $486 an ounce, or $326 an ounce if you factor in the sale of other metals. Total cash costs, including all expenses, ranged between $750-$800 an ounce. Barrick is aiming to produce 9 million ounces of gold in 5 years as two projects ramp up. Goldcorp made 57 cents a share, producing 689,600 ounces of gold at net cash costs of $164, including byproduct sales. Total cash costs are $700 an ounce and the company is planning to grow 60% in 5 years, adding 6 new mines to produce 4 million ounces of gold annually. Barrick is expecting a 10% cost increase in 2011, half from rising energy prices and half from higher labor wages. Goldcorp is anticipating a 6% pop for the same reasons. Both companies don't use a large amount of diesel and Barrick is hedged at $85 a barrel while Goldcorp is budgeted at $111 a barrel. Wage inflation is every gold miner's problem especially if they are operating in inflation high countries like Argentina, for example, as Barrick is. There is a shortage of good geologists and metallurgists in the world and companies will continue to have to pay up for employees. Barrick and Goldcorp have the cash to do it, though, with $4 billion and $596 million in cash and cash equivalents, respectively. The life blood of these companies is their project pipelines. Barrick brought its Cortez Hills project in North America on stream in 2010 and it is expected to produce 1.3-1.4 million ounces of gold a year for under $300 an ounce. Barrick is also investing time and energy into its Pueblo Viejo and Pascua Lama projects in the Dominican Republic and Chile/Argentina, respectively.