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Owning some gold has long been a part of the Money Morning investing philosophy. After all, gold offers some insurance against the dollar-debasing policies of the U.S. Federal Reserve.
One of the easiest ways to acquire the yellow metal is to buy a gold mining stock such as Newmont Mining Corp. (NYSE: NEM).
With gold prices down more than 27% in 2013, gold miners have really taken it on the chin. Newmont stock has fallen along with the other miners, having plunged a whopping 50% in 2013.
Gold miners get hit disproportionately hard when the price per ounce falls because it directly affects their profitability.
When gold prices are high, companies can afford to explore and extract more gold from their mines because of the premium they receive from its sale. Conversely, when gold is hovering near lows, miners do everything in their power to reduce expenses (which includes new exploration) and costs of all types.
So the cost to produce an ounce of gold, as well as the current price of gold, is the key to analyzing this industry. Keeping the cost of production below the actual price of an ounce of gold is paramount to a miner's success.
Newmont Mining (NYSE: NEM): Poised to Gain from Higher Gold Prices
The price of gold is currently about $1,200 per ounce, while Newmont's all-in costs to produce that same ounce is $993, according to the company's most recent third-quarter filing. But that's down 16% from the prior year quarter, helping to preserve profitability.
Over the last three quarters, in fact, NEM managed to cut spending by $700 million, which is an improvement of 13% from the same period a year ago.
Even with the shrewd cost-cutting, revenue has still languished. Revenue declined 20% from $2.5 billion to $2 billion for the most recent quarter. And this was not due to lack of gold production, since the company produced and delivered 4% more gold than it did a year ago.
Here's why that ability to keep mines producing gold at a rapid clip is vitally important...