Gold is still the hot trade. While it's not that hard to remember when gold was an afterthought, squeezed between a quick summary of bonds and commodities during financial programming, it is now a leading investment class. Whether an investor's interest in gold is fueled by fears of inflation, economic and political turbulence, its technicals, or even just a "greater fool" theory, the reality is that it has been a winning trade.

By now any investor with even a passing interest in gold knows a little something about the myriad of choices for getting in on this investment. People can choose to own actual bullion or numismatic gold, resource mutual funds, specialized ETFs like SPDR Gold Shares (NYSE:GLD), or mining stocks ... and those are just the most popular options.

Given that mining companies are the only entry on the list that can actually grow from internal strategic decisions, it is worth a look at some of the major mining companies.

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A Quick View From Above
What is interesting about mining companies is that they don't necessarily track gold prices. True, they follow the same general path, but there can be notable breakouts above (and below) the price of gold as investors react to news about production, operating costs, new discoveries, and so on.

Another interesting detail is that, despite the inflationary pressures popping up around the world, most analysts still expect gold prices to peak in 2011/2012 and then decline. That could put a premium on production growth, resource growth and operating costs and there are wide discrepancies between the major miners in those variables. All things being equal, it can be more effective to own miners with high cost structures during periods of rising prices (and vice versa), although production growth is almost always welcome.

Agnico-Eagle Mines (NYSE:AEM)
Based in Canada, AEM offers investors six productive mines, all located in friendly countries, and significant growth potential simply from exploiting the resources the company already has under title. While Agnico-Eagle is somewhat small with 1.8 million ounces of proven gold reserves (and another 19.5 million deemed probable), the company could be looking at double-digit production growth for most of the next five years. Operating costs are tracking higher though, and the stock is not the cheapest of the larger group. (For more, see Gains In Gold Miners.)

AngloGold Ashanti (NYSE:AU)
South Africa's AngloGold Ashanti is a fair bit larger than AEM in terms of its reserve base, but trades at a considerably lower valuation on a proven/probable per-ounce basis. AngloGold's mines are spread across the world, although about 70% of the company's gold comes from Africa (including the increasingly less-competitive mines of South Africa). AngloGold has made some savvy moves of late, including repurchasing forward sales at prices that already look attractive. Still, the company has been seeing production declines and high production costs, so investors may wish to consider how much they want to pay for that sort of operating profile. (For more, see Why Gold Companies Love Africa.)

Barrick Gold (NYSE:ABX)
Another Canadian-based gold miner, Barrick is well-diversified, with 25 operating mines on five continents. With 139.8 million proven and probable ounces of gold reserves (32.2 million proven), Barrick is easily the world's largest producer. With that scale comes a solid balance sheet, although the company's spread-out operations do seem to lead to more middle-of-the-pack performance on operating costs. Growth prospects look relatively moderate over the next five years, but the company recently made a rich offer for Equinox to expand its copper resource base. Barrick also carries a more middle-of-the-pack valuation at present, but that quality and diversification make it a more interesting risk-reward opportunity.

Goldcorp (NYSE:GG)
It wasn't so long ago that Goldcorp operated one mine in Canada. Now it is a fast-growing miner with 17 properties in North and South America. Goldcorp has been an active acquirer, but it tends to acquire high-quality properties and run them well; Goldcorp has relatively low cash operating costs and further enhances its profitability by producing byproducts like silver, copper and zinc. Boasting more than 60 million ounces of gold reserves (23.2 million proved) and reasonable single-digit organic growth prospects, Goldcorp is a quality candidate. Unfortunately, that quality is already known and Goldcorp is relatively expensive on an NAV basis.

Newmont Mining (NYSE:NEM)
A ways behind Barrick, Newmont is nevertheless the second-largest gold producer in the world, with 93.5 million ounces of proved and probable gold reserves. Unfortunately, Newmont scores relatively poorly on two important tests - production is likely to decline until some time late in the next five years and the production cost profile is not great. Newmont is not overpriced on a relative basis and the company's exploration program (which is focused largely on politically stable countries) should pay off if gold prices stay high.

The Bottom Line
While production costs even as high as the $600s per ounce may make gold mining look like a bargain, investors should keep an eye on the marginal production costs and the amortization that miners are recognizing to get a real sense of the profitability of gold. Right now, those marginal prices seem to be creeping up near $1,000 an ounce, with another $100 to $200 per ounce in amortization. With gold at around $1,500 an ounce that is still plenty of room to make a profit, but investors must dig a little deeper to appreciate the real value produced by a miner they are considering for investment. (For more, see What To Do About Gold Now.)

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