The waiting game is over.
Plagued by skyrocketing costs during the first half of 2008, and by collapsing metal prices in the second half of the year, the gold miners have finally hit their stride.
Yamana Gold(NYSE: AUY) shares have surged more than 100% since I urged Fools to consider the valuation back in October, and the favorable operating conditions outlined in the company's latest quarterly results make a strong case for a continued recovery, even if gold prices stall at present levels.
Yamana earned $179.4 million in the fourth quarter, despite a $74 million hit from copper pricing adjustments related to the epic collapse of copper prices during the period. With copper prices stabilizing nicely from their December lows, and a projected 35% increase in gold production with no added base-metal exposure in 2009, I believe Yamana Gold is effectively out of the woods with respect to copper's threats to the bottom line.
Since Yamana CEO Peter Marrone called an industrywide peak in gold production costs during the third quarter of 2008, earnings results from competitors like Randgold Resources(Nasdaq: GOLD) and Kinross Gold(NYSE: KGC) have provided ample corroboration. Given the decline in fuel prices, which factor heavily into mining costs, the trend is no great surprise … but Yamana Gold continues to flex its well-honed margin muscle with a cost of just $136 per gold-equivalent-ounce (GEO) for 2008. After backing out the positive impact of byproducts like copper and silver, Yamana's costs of production remain well below those of larger rivals like Barrick Gold(NYSE: ABX) and Newmont Mining(NYSE: NEM).
Low production costs are just one reason that I have consistently favored the intermediate gold miners over their larger rivals. Robust organic production growth from top picks like Yamana Gold and Agnico-Eagle Mines(NYSE: AEM), once just strategic plans on a drawing board, is now ramping up significantly, just as gold is gaining momentum as a safe-haven asset. Both of these miners easily replaced their production in 2008, with Yamana adding 2.5 million ounces of reserves while mining less than 1 million ounces. With new mines and major expansions ramping up toward full production, Yamana expects to double production by 2012 to 2 million ounces. For Fools seeking shelter from a brutal equities market, I consider Yamana Gold among the highest-quality vehicles for exposure to gold.