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High Gold Prices Put Major Miners in Focus

According to CEO Aaron Regent, Pueblo Viejo will ramp up in the fourth-quarter 2011 and enter into production in 2012 and the company owns 60% of the gold. Goldcorp owns the rest. The mine will turn out 1.1 million ounces of gold a year for cash costs below $300 an ounce. Pascua Lama will produce in 750,000-800,000 ounces of gold for the first 5 years at cash costs of $20-$50, which "will reduce our overall cash costs by about 10%," says Regent. First production is scheduled to start in the front half of 2013

JPMorgan Chase (JPM) has a buy rating on the stock and says "Barrick ... has one of the industry's strongest project pipelines." The investment bank also has a buy rating on Goldcorp based on the company's new explosive silver and gold mine, Penasquito.

Penasquito produced 4.6 million ounces of silver in the fourth quarter, its first in production. The mine has 18.6 million ounces of proven and probable gold reserves and 1.1 billion ounces of silver, making it one of the biggest in the world.

The mine should produce 28 million ounces of silver a year, with Goldcorp keeping 21 million ounces, the rest goes to silver royalty company Silver Wheaton (SLW - Get Report). The massive amount of silver Goldcorp can produce will help keep cash costs down at all its other mines and help pay for its 6 projects, joint ventures and satellite properties it will develop over the next 5 years.

Barrick and Goldcorp don't come without risk. Analysts site lower gold and silver prices, higher operating costs and any production or development delays as risks to both companies and for Goldcorp, specifically, the pressure to deliver on Penasquito.

There are some ownership issues for Barrick at the Chile portion of its Pascua Lama project. According to reports, Canadian based gold miner Mountain-West Resources is helping to fund a lawsuit which states that 4 individuals are the legal owners of the Chile section of Pascua Lama. Communications Manager, Andy Lloyd says "this lawsuit does not affect the development of Pascua-Lama whatsoever."

Barrick has 25 buy ratings and Goldcorp has 19, with their average price targets at $65.37 and $62.77, respectively. Both only have 1 sell rating and just a handful of hold ratings.

Year-to-date Barrick is down 4.3% and trades at a forward looking price to earnings multiple of 11.41, well below the industry average. Goldcorp has rallied up 7% and trades at a multiple of 18.53. For a miner, the higher the PE, the bigger the growth, which, on this metric, makes Goldcorp more interesting.

But Barrick is cheaper. Dividing the enterprise value (the whole value of the company) by the EBITDA (earnings before interest, taxes, depreciation, and amortization), Barrick trades at 9.3 times trailing estimates while Goldcorp trades at 18.58 times. The numbers reflect their growth profiles -- Barrick's EBITDA will grow 3.5% through 2012 while Goldcorp will grow 18%, but an investor will have to pay up for it.

Investors no longer seeking the fast money with junior gold miners can start looking at the reliable producers. Their rallies won't be as fast and furious but neither will their selloffs. With gold prices treading water between $1,400 and $1,450 an ounce, Barrick and Goldcorp will have big profit margins and many analysts think the potential for big upside.

More on Gold
Gold Price News
How to Invest in Gold

-- Written by Alix Steel in New York.

>To contact the writer of this article, click here: Alix Steel.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
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