Does Allied Nevada Measure Up? Not Against This Gold Miner

During the past three quarters, respected hedge fund manager Seth Klarmans
Baupost Group has accumulated 3.5 million shares, or 4% of the stock, in junior
gold producer Allied Nevada Gold (NYSE: ANV ). Its stock is up 22.8% in the last
year and trades at an incredibly steep PE multiple. Despite this fact, Klarman
continues buying. Klarman is a brilliant man and many investors probably are
tempted to follow suit. But before doing so, why not consider a safer option
like Yamana Gold (NYSE: AUY )? Gold Production In the first nine months of 2011,
Allied Nevada produced 69,840 ounces of gold, 16.5% less than a year ago.
Fortunately, its average realized price per ounce was $1,543, 29% higher
year-over-year. Translated into actual revenue, Allied Nevada grew gold sales in
this period by 10.1% to $105.8 million. However, because of delays in equipment
delivery to its Hycroft mine, Allied Nevada is behind schedule. As a result, the
company will produce 100,000 ounces of gold in 2011, about 15,000 shy of
expectations. According to Allied Nevada, the Hycroft mine has a potential 17
million ounces of gold available over its useful life. From this perspective, a
shortfall isnt a big deal as long as gold prices remain high. However, a 20%
drop in the price of gold from current levels around $1,690 an ounce amounts to
$5 million in lost revenue and a couple of million in operating income. Size
Comparison To give you an idea how much bigger Yamana Gold is compared to Allied
Nevada, check out Yamanas silver production for the first nine months of the
year. It produced 7 million ounces of silver to the end of September at an
average selling price of $36.42 an ounce, generating revenue of $255 million
2.2 times Allied Nevadas total revenue for both gold and silver . Size has its
advantages. While Allied Nevada currently mines from just the Hycroft property
(although it does have several others in the advanced exploration stage), Yamana
has seven mines operating in Brazil, Chile, Argentina and its newest (Mercedes)
in Sonora, Mexico. Yamana expects production at its Mexican mine will grow to
more than 130,000 gold equivalent ounces by sometime in 2013. In addition to the
newly opened Mercedes, it has three additional mines planned in Brazil, all of
which should open by the end of 2013. In terms of diversification, theres no
comparison.