Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Alix Steel will appear on NBR Tuesday (check local listings) to discuss investing in gold mining companies.

NEW YORK ( TheStreet) -- Gold mining stocks are risky but can offer leverage to gold prices. There are three gold companies whose stories have recently changed, providing possible catalysts for the stocks.

First off, there are several issues to consider when buying gold miners.

As with any investment, they are risky and usually lead gold prices to the upside and downside. Find companies with strong production and reserve growth. Make sure they have good management and inventory supported by either buying smaller companies or by maintaining consistent production.
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As gold prices rise, gold companies can make more for every ounce of gold they produce, but their net profit depends on their cash costs -- how much it costs them to produce an ounce of gold. Those factors vary from company to company and are subject to currency issues, energy costs and geopolitical factors.

Vote: Where will gold prices finish in 2011?

Also make sure the gold company you are betting on is un-hedged and has growth potential. There is a finite supply of gold in the ground. The above ground supply is currently 160,000 tons and in the third quarter 2010 mine supply grew 3% to 702 tons, according to the World Gold Council. Companies, in order to meet growing demand, either have to invest in an active exploration unit in hopes of striking gold, or have enough cash to buy a smaller company.

Finding a good pick can be like looking for a gold coin in a haystack. Here are three options.

Newmont Mining ( NEM)

Newmont has a market cap of $28.02 billion and is one of the top 5 gold producers in the world. Newmont produced 1.4 million ounces of gold in the third quarter at cash costs of $477 for revenue totaling $2.6 billion. The company trades at a discount to its peers, according to TheStreet ratings team, with a price to earnings multiple of 14.05 and declares a 1.04% dividend. TSC has a price target of $75.25.

Newmont's story changed on Feb. 3 when it bought Fronteer Gold ( FRG) for $2.3 billion, a 37% premium.

The worst kept secret in the gold community was that Newmont and Barrick Gold ( ABX) would have to make an acquisition to replenish their gold reserves. Its peers, Goldcorp ( GG), Kinross Gold ( KGC) and Agnico-Eagle ( AEM) all had to pony up the cash in 2010 to find more gold.

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The worry has kept Newmont's stock from exploding like its peers. Newmont returned 27.9% in 2010 versus Agnico, for example, which was up almost 37%. Newmont is trading down 13% from its 52-week high and TheStreet has a price target of $75.25.

Newmont's purchase of Fronteer has removed this headwind for the company. It's solved the question marks of how to get more gold, when it will happen and at what price tag. In total, the company has just purchased measured and indicated gold resources of 4.2 million ounces at roughly $547 per ounce.

Randgold Resources ( GOLD)

Randgold is a West African gold miner with a $7.03 billion market cap and has had a tough year. Its CEO Mark Bristow's goal is to be a one million ounce a year producer, but that dreamed was snagged in 2010 due to production issues at its Loulo mine in Mali and political uncertainty in the Ivory Coast, which disrupted production at its new Tongon mine.

In the fourth quarter, the company sold $145 million worth of gold and produced 132,099 ounces of gold at cash costs of $766 an ounce. For the year, Randgold produced 440,107 ounces of gold at $699 cash costs. Cash costs were high because the company was ramping up gold production at Tongon where it poured its first gold November 8th as well as hitting expansion snags at Loulo.

Much of Tongon's gold remained unsold, $33 million worth, as disputes over a November election in the Ivory Coast prevented the company from being able to sell the gold. Tongon produced 28,126 ounces but only sold 4,698.

According to the company's last quarterly report, management will run the operation with one stream to conserve on cost until the political turmoil settles. Reportedly, the mine is functioning normally.

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If there is no more political unrest, Tongon is forecasting to produce approximately 260,000 to 270,000 ounces in 2011.

As for Loulo, both underground and open pit production was hurt by expansion plans in the plant and a lack of strong throughput, the amount of ore passed through the mill. During the quarter Loulo produced 80,332 ounces of gold at total cash cost of $799 an ounce.

Higher oil prices and higher royalties also cost Randgold a pretty penny at Loulo. Even though Randgold made more on its gold as the price rose, that also meant that its royalty payments popped.

Loulo is now producing a higher grade of gold which should help soften cash costs. For 2011, Loulo along with Gounkoto (Loulo will treat Gounkoto's gold in its facilities) will produce 420,000 to 440,000 ounces.

Also, according to Bristow, Randgold is transitioning from a deep pit to underground mining company, which is less expensive. Higher grades across its operations will also continue to lower cash costs which will help offset any rise in input costs.

Randgold' story is slowly changing as the company removes these production headwinds and the stock could soon come out of the penalty box. Shares returned only 0.34% in 2010 after hitting a 52-week high of $106.44.

The company could produce between 750,000 and 790,000 ounces of gold in 2011 at less than $600 an ounce. Randgold announced an 18% dividend increase and just received a few upgrades. The company also doesn't acquire other companies and solely focuses on organic growth. It's tough and painful but Bristow does not issues shares or dilute shareholders.

TheStreet ratings team as a $105.45 price target on the stock despite the fact that it trades at a premium to its peers on a price to earnings multiple.

AngloGold Ashanti ( AU)

AngloGold is a South African gold miner with a $16.49 billion market cap. The company also has mines in continental Africa, Australia and the Americas.

In the third quarter, the company produced 1.16 million ounces of gold at cash costs of $643 an ounce. Its South African mines were responsible for 478,000 ounces at cash cost of $594 an ounce, leaving more than half of production at Anglo's other mines.

AngloGold's operations in South Africa are painful. The rand, the local currency, is high, which makes operating in the region expensive; there are added seasonal tariffs; annual labor costs increase and there are higher royalty payments.

Another recent snag is that South Africa's African National Congress is considering nationalizing local mines. The combination is leading the CEO Mark Cutifani to consider spinning off its South African operations into a different company so the remaining projects wouldn't be dragged down by currency and political issues and could take advantage of a higher gold price.

AngloGold certainly needs some good news, the stock was up only 17.3% in 2010, is down 7.9% so far in 2011, and is far from its 52-week high of $52.86.

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AngloGold also eliminated its hedge book on Oct. 7, 2010 by buying back its 3.22 million position. Hedging is a dirty word in the gold community and to eliminate the company had to literally buy gold. Closing out all the future contracts over three years cost the company a total of $6 billion. The most recent purchase cost $2.64 billion where the company had to buy gold for $1,300 an ounce. The upside is the company now has full exposure to the spot price, which will make it more profitable.

The average price target for AngloGold's stock is $55.32 while shares trade at an average next year price to earnings ratio of 11.08, slightly above the industry average. The company currently pays a 0.4% dividend. If the company can shake off its South African woes, considering the company is now de-hedged, the company could find the catalyst the stock has been waiting for.


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-- Written byAlix 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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