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Now that’s more like it. When I dropped Kinross Gold (KGC) from my long-term Jubak Picks 50 portfolio on January 13 I said that what I wanted in a gold mining stock was a company with low production costs and rising production. Kinross, I opined, didn’t fit that bill any longer. (See my January 17 post )

But my replacement for Kinross, Yamana Gold (AUY) does. The company’s cost of production is at the low end for the industry—at $450 a gold equivalent ounce in 2010–and it has one of the best profiles for increasing gold production among gold miners. That’s why I added it to the Jubak Picks 50 portfolio on January 13. (See my post for all the changes to the portfolio.)

Low production costs for a gold mining company largely hinge on the richness of the ore grades in its mines. The richer the ore is in gold, the less of it a company has to dig, move, and smelt to recover an ounce of gold. It also helps if the ore you mine for gold contains concentrations of other valuable metals such as copper. Yamana’s flagship El Penon mine in Chile grades out at a high 7 grams of gold per ton of ore. Its Chapada mine in Brazil produced almost 150 million pounds of copper in 2010. Yamana’s Agua Rica mine, now under development, looks likely to contain reserves of 6.6 million ounces of gold and 10 billion pounds of copper. The result of these riches is lower costs.

Yamana is forecast to grow gold production by about 70% from 2010 through 2015 by beginning fold production at its Pilar, C1 Santa Luz, Ernesto, and Mercedes mines by 2013 and by increasing production at existing mines.

In the short-term you want to own Yamana because of that rising production. I’d put a $20 one-year target price on the shares, which closed on January 20 at $15.34. In the longer-run you want to own Yamana because of that rising production and the almost 100% certainty that all the money being added to the global balance sheet by the Federal Reserve, the European Central Bank, and others will eventually produce rising inflation and falling currencies in the developed world.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Yamana Gold as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at