There are twenty-four gold and silver companies that trade on major American exchanges (the NYSE, the Nasdaq, and AMEX) and this article identifies the ten best-managed of the bunch. These are not the ten best-performing stocks of the past year, nor are they necessarily the ten best stocks to invest in for the future. There are a lot of elements that go into stock performance, and one that is commonly overlooked is managerial acumen. That, and that alone, is the focus of these evaluations.
The criteria used: I looked at each company’s three-year sales growth, return on equity, use of debt, fifty-two week stock performance, and insider ownership. I also looked more generally at each firm’s balance sheet, and made a non-quantitative assessment of its management and shareholder practices. In assigning letter grades, I compared gold companies to other gold companies, and silver companies to other silver companies, though in some categories, there wasn’t a distinct difference between the two.
With all that in mind, here is the list:
1. Mines Management, Inc. (Ticker: MGN)
Mines Management acquires, develops, and explores mineral properties in the United States, with the intention of producing silver and copper. The company’s biggest project is the Montamore property in Montana, which covers over 1,500 acres.
Mines Management’s officers and directors are heavily invested in their firm, owning over 20% of the company’s shares. This is by far the most of any major-index gold or silver firm. Over the past fifty-two weeks, management has increased shareholder value by close to 200%, nearly tripling the price of MGN shares from $0.91 to $2.64. Management has done this without taking on any new debt, and in fact, the firm has no long-term debt, and a debt-to-equity ratio of 0%. Mines Management’s balance sheet is very strong—the firm has $7.7 million in cash on hand and only $1.7 million in total liabilities!
Mines Management is a tiny micro-cap stock with a total market valuation of just $68.83 million. Its share price is under $5, but unlike most “penny stocks,” it trades on a major exchange—the American Stock Exchange—and not the Pink Sheets or OTCBB.
MGN’s Management Grades
Stewardship: A, Financial Management: A-, Performance: B+
2. Eldorado Gold Corp. (Ticker: EGO)
Eldorado Gold is a Vancouver-based gold-mining company with active operations in Brazil, China, and Turkey. Its CEO, Paul N. Wright, has been with the company since 1996 and has been chief executive since 1999. Mr. Wright has over a quarter-century of experience in developing and operating open-pit and underground gold mines, and his expertise has helped make investors big bucks. Over the past fifty-two weeks, Eldorado’s stock price has soared by more than 164%.
Eldorado’s management has grown sales by a compound average of 55% each of the past three years. The company’s return-on-equity last year was 26.4%—by far the highest of any gold company. The firm has no long-term debt and an impeccable balance sheet. For instance, its current assets alone ($299.1 million—$149 million in cash!) dwarf its total liabilities ($127.7 million).
Finally, insiders own 6.95% of the firm’s shares. This might not sound like a whole lot, but the average for gold and silver companies is only around 5%. Eldorado is a $5.33 billion stock that trades on the NYSE.
EGO’s Management Grades
Stewardship: B+, Financial Management: A, Performance: B-
3. Silver Wheaton Corporation (Ticker: SLW)
Silver Wheaton is a unique silver company. Rather than mining silver, Silver Wheaton obtains it through long-term purchase contracts. Thus, shares of SLW are an un-hedged, almost “pure play” on silver—maybe the next best thing to physical silver in your hand.
Silver Wheaton’s CEO is Peter Barnes. He’s one of the founders of Silver Wheaton and has been with the company since its inception in 2004. Prior to that, he was CFO of Wheaton River Metals. Barnes and the rest of Silver Wheaton’s management team are generally given high marks for their focus on increasing shareholder value by expanding the firm’s exposure to low-cost silver. Silver Wheaton insiders own over 10% of the firm’s shares, which are up more than 475% over the past fifty-two weeks. The firm also generates a pretty solid return on equity at 9.7%.
Silver Wheaton has a $5.46 billion market cap and it trades on the New York Stock Exchange.
SLW’s Management Grades
Stewardship: A-, Financial Management: C+, Performance: A
4. AngloGold Ashanti Limited (Ticker: AU)
AngloGold Ashanti is a gold-mining company based in Johannesburg, South Africa, though it has operations in ten countries on four continents. AngloGold Ashanti has twenty-one mines, a huge product pipeline, and an extensive world exploratory program. Its proven and probable reserves total 73.1 million ounces of gold.
Mark Cutifani took over as AngloGold Ashanti’s CEO in September of 1997. Prior to that, he had been the head of the firm’s global nickel business. Though the stock price fluctuated greatly during Mr. Cutifani’s early tenure, over the past fifty-weeks, he and the rest of management have been able to expand shareholder value by more than 120%. It’s also important to note that AngloGold insiders own 12.11% of their firm’s shares, which is a fairly large percentage for gold and silver companies. AngloGold Ashanti is also debt-free.
AngloGold Ashanti’s market cap is $16.29 billion and it trades on the NYSE.
AU’s Management Grades
Stewardship: A-, Financial Management: B-, Performance: B-
5. IAMGold Corporation (Ticker: IAG)
IAMGold explores for, develops, and mines mineral-resource properties all over the world, with a strong emphasis on gold. The company is considered to be among the top mid-tier gold miners, with annual production of nearly a million ounces a year. IAMGold is Toronto-based, though its operations are scattered throughout North and South America, as well as Africa.
IAMGold’s CEO is Joseph Conway. Mr. Conway began his career as an exploration geologist, so he definitely knows the business. Although insiders own just 2.3% of IAMGold’s shares, the firm still manages a B- stewardship rating due to its pro-shareholder policies like expensing of stock options and holding staggered board elections.
Regardless, IAMGold’s numbers are excellent. Management has increased sales at a three-year compound pace of 51%, and generated a 402.5% return for shareholders over the past fifty-two weeks. IAMGold has a $6.87 billion market cap and trades on the NYSE.
IAG’s Management Grades
Stewardship: B-, Financial Management: B-, Performance: A-
6. Gammon Gold, Inc. (Ticker: GRS)
Canada-based Gammon Gold mines and explores for both silver and gold in Mexico. It’s a relatively small producer with a market cap of $1.53 billion and 2008 sales of $212.5 million. Last year was Gammon’s first to turn a profit, swinging from an ’07 loss of $101.3 million to an ’08 gain of $30.2 million—that’s certainly a sign that management is on the right track. Over the past fifty-two weeks, shares of GRS are up more than 285%.
Gammon’s management team is very rich in experience. CEO Rene Marion took over in late 2007, and the former CEO, Russell Barwick, has stayed on as a member of the firm’s board of directors. Marion has more than two decades of experience in the mining industry and previously worked in Russia for Barrick Gold (Ticker: ABX). Gammon’s president, Fred George, has served in that capacity since 1997 and was named chairman of the board of directors in 2002.
GRS’s Management Grades
Stewardship: C+, Financial Management: C+, Performance: B
7. Buenaventura Mining Company Inc. (Ticker: BVN)
Buenaventura Mining Company—or Compania de Minas Buenaventura as it’s known in its native Peru—explores for, mines, and processes both gold and silver. Currently, Buenaventura operates seven mines and holds minority interests in several others, including a 43.7% stake in Yanacocha, which is South America’s largest gold mine. Buenaventura also mines copper, and has an 18.5% stake in Freeport-McMoRan’s Cerro Verde copper mine.
Roque Benavides Ganoza has been the president and CEO of Buenaventura Mining since early 2001, and has been with the company a total of thirty-two years. The Benavides family owns 27.5% of Buenaventura, which is a source of a bit of concern. But the company still gets high management marks, mostly due to its stellar return on equity, which came in at 28.5% last year. This is by far the highest among silver stocks, and even higher than Eldorado Gold’s 26.4%.
Buenaventura Mining Company trades on the New York Stock Exchange. It has a $10.1 billion market cap. Sales have increased at a compound rate of 10% per year for the past three years, and the stock is up more than 178% over the past fifty-two weeks.
BVN’s Management Grades
Stewardship: C, Financial Management: B, Performance: B-
8. Endeavour Silver Corporation (Ticker: EXK)
Like Gammon Gold, Endeavour Silver Corporation is a Canada-based exploration and mining company that operates primarily in Mexico. Unlike Gammon, Endeavour’s focus is on silver, though it does mine gold, too. In fact, the company used to be known as Endeavour Gold Corporation.
Endeavour gets its highest marks in the performance category. Though the stock has appreciated “only” 188% over the past twelve months—not exceptional for a silver stock—sales have increased at a compound rate of 45% over the past three years, which is by far the most of any silver companies. This sales growth should translate into stronger earnings in the future, and further stock appreciation.
Endeavour trades on the American Stock Exchange. With a sub-$5 share price and a market cap of just $225 million, it is both a “penny stock” and a micro-cap (albeit a fairly large one). With each distinction comes some added risk, but these risks carry the potential for greater reward.
EXK’s Management Grades
Stewardship: C, Financial Management: C, Performance: B
9. Kinross Gold Corporation (Ticker: KGC)
Kinross Gold is one of the ten largest gold producers in the world. Based in Canada, the firm has eight mines in Brazil, Chile, Russia, the United States, and Canada. The firm produced 1.8 million ounces of gold in 2008 and has reserves totaling approximately forty-five million ounces.
Kinross’s stats are a mixed bag: On the positive side, management has been able to increase sales by a compound annual rate of 38% over the past three years, and insiders own more than 10% of the company’s shares (a very high mark for a gold company). On the negative side, Kinross’s 5.1% return on equity is just average and its 37.18% stock-market gains over the past year are by far the lowest of any firms in the top ten (or the four runners up, listed below). A great balance sheet is management’s saving grace.
Kinross trades on the New York Stock Exchange and has a $13.5 billion market cap.
KGC’s Management Grades
Stewardship: C+, Financial Management: C, Performance: C-
10. Lihir Gold Limited (Ticker: LIHR)
Lihir Gold is a Papua New Guinea-based gold miner that was founded in 1995 to mine the Lihir Island gold deposit. Since then, the firm has expanded through acquisitions, the most notable one coming in June, 2008, when it purchased Equigold. Lihir has a $7.2 billion market cap and is a Nasdaq Global Select stock.
Lihir Gold added a lot of long-term liabilities in 2008 and burned through a ton of cash, but it still makes the list of the top-ten managed gold and silver companies—just barely. Companies that just missed the cut include Pan American Silver Corp. (Ticker: PAAS), Gold Fields Ltd. (Ticker: GFI), Yamana Gold (Ticker: AUY), and Coeur d`Alene Mines Corporation (Ticker: CDE).
What allowed Lihir to make the cut was its three-year compound sales growth of 42% and the 125% increase in shareholder value over the past fifty-two weeks. CEO Arthur Hood has been at the helm since 2005. His twenty-five years worth of mining experience is a plus, as is the fact that he’s the only non-independent member of Lihir’s nine-person board of directors.
LIHR’s Management Grades
Stewardship: C+, Financial Management: D+, Performance: C+