Three Gold Mines Entering Production With Costs Below $900/oz

Gold has had a rough year. At $1,300/oz, even operational gold mines are threatened with closure. All-in cash costs for gold producers in 2012 averaged $1,211/oz. In other words, most gold gold mines are almost operating at a total loss. Meanwhile, the rest of the stock market is euphoric near all-time highs.

The Attraction
Still, many people want exposure to gold for general diversification. Most investors are not experts in commodities, but like most people, they know enough to want to allocate a small portion of their portfolio to gold. They also want to think for themselves, and do not want to invest in physical gold, suffering losses like $1,900/oz to $1,300/oz.

For investors approaching gold with fresh eyes and no existing investments, they can select anything they desire. The best place to look would seemingly be gold companies for exposure to the current bull market in equities, but as research will quickly reveal discovered, the major mining companies are falling like flies and there is nothing but carnage in the juniors.

Investors might continue their search. Royalty companies? Definitely not. Over the past year, Franco-Nevada (OPK )

Pershing Gold purchased a mine out of bankruptcy that had produced over 100,000 ounces of gold. Its plan is to mine gold using existing processing facilities it owns, and it has already raised most of the capital it will need to start mining. It completed its NI 43-101 report on April 12, 2013.

Its property is adjacent to Coeur d'Alene's Rochester property and, located in Nevada, has easy highway and railway access, no geopolitical risks, skilled workers, and all the trimmings of U.S. production. It should be able to produce at $800/oz by early 2014. Its CEO previously built a company and sold it for C$186.9 million, and its insider trading ledger shows millions in open market purchases. Market capitalization stands at $100 million. From a technical standpoint, the stock has doubled from $0.30 to $0.60 within the past year and recently pulled back to $0.34, allowing an entry far below 52-week highs. Pershing Gold is a very cheap company with plenty of near-term catalysts that could provide nice returns for prudent investors.

• Premier Gold Mines Limited (PIRGF)

This company has three main properties: a wholly-owned project in Nevada's Battle Mountain Trend, a wholly-owned project in Ontario's Geraldton-Beardmore and a 49%-owned joint venture with Goldcorp (GG) in Ontario's Red Lake. It has over $100 million in cash and boasts analyst coverage by RBC Capital, CanaccordGenuity, Scotia Capital, Cantor Fitzgerald and Stifel Nicolaus. Value investors cringe a bit at this popularity, but its market capitalization does not seem outrageously expensive.

Premier Gold Mines CEO Ewan Downie founded Wolfden Resources and sold it in 2006 for C$346 million. Fidelity is an institutional stakeholder. Its Nevada and Geraldton properties will probably not enter production by 2014, but its joint venture with Goldcorp will. Its cost per ounce of gold will likely fall under $900 due to its financial partnership with Goldcorp.

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Although investors might like the strength of this company's balance sheet, scheduling has them concerned. Only one of the company's three projects will be entering production by 2014, and that project is the smallest, 49%-owned joint venture. On the whole, Premier Gold Mines is a well-capitalized company, but it is about two years away from truly commencing its own mining operations. From a technical standpoint, the stock has traded as high as $8 per share during peak gold prices in 2011 and has retraced all the way to $1.81 per share. Nonetheless, it is still trading significantly higher than its lows during the 2008 financial crisis, and its large cash balance and analyst entourage makes it the most relatively expensive stock on this list.

Conclusion
Investors want to invest in gold. Most of them do not want to own the physical stuff, as anything with direct correlation has performed terribly over the past year (trusts, funds, ETFs, royalties, equipment and especially major miners). The only thing that makes sense to investors is near-term, low-cost pre-producers. Essentially, investors want to buy gold at a discount to today's $1,300/oz spot price, and they understand that that they must accept risk to achieve that discount. Before they invest in any company, they should complete due diligence and quantify that risk in comparison to the upside potential. To this end, this article has provided another way to look at gold investing and introduced some eligible investments to evaluate further. The next task is to start looking deeper into Midway Gold, Pershing Gold and Premier Gold Mines to evaluate company-specific risks

Written By: Adam Collins