Montreal, Canada

Throughout the bull market in gold since 2000, producers have consistently earned higher profits as bullion climbs in every calendar year. Input costs have certainly risen over the same period but pale compared to the profits as gold prices have climbed from about $250 an ounce in 1999 to $1,360 an ounce now.

The largest gold mining companies, however, no longer hedge their gold production on a forward basis and some of the results have been nothing short of spectacular this year.

Barrick Gold (NYSE-ABX) is the largest producer in the world. Barrick’s Q3 earnings were off the charts with net income up 75% compared to 12 months earlier. Cash costs per ounce finished the period at $454 or about the industry average.

For conservative and aggressive investors alike, Barrick Gold should be a primary holding in the gold mining space. I still believe the stock is heavily undervalued compared to the gold price and its future growth of mining reserves. My target remains at least $100 a share, probably more.

Institutions only have about 0.5% of their portfolios in gold stocks – and once that changes they’ll be running for cover into the largest and most liquid names. The entire stock market capitalization of the gold stocks is about $350 billion dollars or slightly less than ExxonMobil’s market value.

Among the largest players in this space, a few quality names have lagged recently.

Kinross Gold (NYSE-KGC) has been a dog this year. In September, shareholders of Kinross approved the $7 billion dollar acquisition of West Africa-focused Red Back, a deal that is set to transform Kinross from an intermediate player into one of the world’s top five gold miners by output.

I like Kinross. The stock is currently a contrarian gold mining investment trading more than 32% off its all-time high of $27 a share compared to just several percentage points for the large-cap mining sector as a whole. Kinross’s cash-costs this year should find a floor about $504 an ounce, slightly above the industry average.