12 Stocks That Could Rise From 'Peak Gold'

by Daniel Jennings

Worldwide gold production could be entering a permanent decline - a state of affairs that could greatly boost gold-mining stock values. The reason that gold production could start declining is a theory called peak gold, which is similar to the peak oil theory. The peak oil theory states that at some point, world oil production will start falling because most of the world's oil has been pumped out. The peak gold theory states that we will reach a point at which gold production will start declining because all or most of the world's gold mines have been mined out.

The interesting thing is that we may have already reached peak gold - the height of global gold production. Gold production in a number of countries, including South Africa, has been falling for some time. In South Africa, gold production has fallen from a high of 1,000 tons in 1970 to just 250 tons in 2011. Production in South Africa is continuing to decline; it fell by about 2.9% in May 2012 alone.

Other major gold producing nations, including the United States, Australia, Canada, and Peru, have reported declines in production in recent years. Indeed, only two major gold-mining nations, Russia and China, have reported increases in production in recent years.

The benefit this could have for gold mining companies is obvious: higher gold prices. If less gold is being mined, the price should start going up, especially if demand increases because of inflation in India and doubts about the Euro and the U.S. economy. Falling production and increasing prices will naturally increase profits and share value at gold producers.

The miners that would gain most from peak gold would be those with new mines that should come online in the near future. That includes major producers, such as Rio Tinto (RIO), Freeport-McMoRan (FCX),Barrick Gold (ABX), Newmont Mining (NEM), Kinross Gold (KGC),Goldcorp (GG), and BHP Billiton (BHP).

The losers here will be those companies most exposed to South Africa. That includes AngloGold Ashanti (AU) and Anglo American (AAL.L). These companies could lose share value unless they develop resources outside of South Africa where production is falling. If they cannot develop new production, their future growth could be limited, as could earnings per share and dividends.

In contrast, those companies that can bring new production online will see increased profits and stock value because they can increase gold production at a time when prices and demand are increasing. It should be noted here that those companies will have to prove that they can actually increase gold production and avoid peak gold.