Gold Mid-Tiers’ Q4’19 Fundamentals

Gold Mid-Tiers’ Q4’19 Fundamentals By: Adam Hamilton, CPA, Zeal Research via Gold Seek

The mid-tier gold miners’ stocks have been annihilated with COVID-19 fears infecting traders’ sentiment.  They crashed with gold getting hammered on extreme gold-futures selling!  With blood in the streets, the buy-low opportunities are phenomenal.  The fundamentally-superior mid-tier gold miners have epic upside potential during gold’s next upleg.  This key sector just reported outstanding Q4’19 results on higher gold.

The sheer carnage in gold-stock-land has been jaw-dropping!  In late February, the gold-stock sector per its leading benchmark GDX VanEck Vectors Gold Miners ETF edged up to a 3.5-year high slightly above early September’s.  That was fueled by gold’s $1600 breakout surge on COVID-19 fears.  Yet as I warned in an essay the trading day before GDX’s peak, gold’s surge was peculiar and precarious lacking normal drivers.

With popular gold-stock greed excessive, our subscription newsletters took the contrarian side shorting gold and its miners’ stocks via put options and leveraged ETFs.  For prudently heeding the data rather than blindly following the herd, I suffered plenty of ridicule.  But those trades were soon vindicated with big realized gains.  Over the subsequent 14 trading days, GDX plummeted an unthinkably-brutal 38.8%!

That extreme capitulation-grade selling intensified this Monday morning, with GDX crashing yet another 14.8% on open.  But from there it rocketed 39.0% intraday to a +18.4% close!  So the very next day in our weekly newsletter, I launched our long-awaited new gold-stock-buying campaign to ride gold’s next major upleg.  This sector looks wildly-bullish not just due to its technical thrashing, but its amazing fundamentals.

The sweet spot for gold-stock upside potential has always been the mid-tier gold miners.  Unlike the large majors, mid-tiers’ lower gold-production levels leave room for big output growth.  Investors prize that over everything else, since it leads to far-higher earnings and stock prices.  Mid-tiers also have way-lower market capitalizations than majors, making it far easier for capital inflows to bid them higher to massive gains.

Surprisingly the world’s best mid-tier gold miners are found in the GDXJ VanEck Vectors Junior Gold Miners ETF.  Despite its now-misleading name, GDXJ actually has very-little junior exposure today.  Back in the first half of 2016 as gold stocks soared in a mighty upleg, this ETF was threatening to run afoul of Canadian securities laws for individual-stock ownership limits.  That forced GDXJ to shift its holdings to mid-tiers.

Mid-tier gold miners produce between 300k to 1m ounces of gold annually, which translates into 75k to 250k each quarter.  The majors run above 1m per year, with the juniors below 300k.  The percentage of GDXJ’s holdings that are true juniors, primary gold miners with sub-75k-ounce quarterly outputs, is well under 10%.  But this leading ETF’s mid-tier focus is very beneficial, as that’s where most gold-stock gains accrue.

Because most gold miners logically run calendar financial years, Q4 reporting has an extended deadline up to 60 days after quarter-end in the US.  In Canada where the majority of global gold stocks trade, the reporting deadline for full years extends out to 90 days.  Annual reports including final quarters are bigger, more complex, and must be audited by independent CPAs.  These results are still coming out this week.

But enough of the GDXJ component stocks have reported to see how the mid-tiers are faring as a whole.  After every quarterly earnings season, I wade through the latest results from GDXJ’s largest 34 stocks.  That’s just an arbitrary number that fits neatly into the tables below, but a commanding sample accounting for 85.4% of this ETF’s total weighting as of the middle of this week.  Incredibly GDXJ is stuffed with 73 stocks!

Most traders probably assume that GDX Gold Miners ETF and this GDXJ Junior Gold Miners ETF have very-different holdings, but that’s not true.  Of the top 34 GDXJ components this week, fully 24 are also GDX-top-34 holdings!  GDXJ effectively lops off GDX’s 8 largest major-gold-miner stocks, and ups the relative weightings of the rest.  GDXJ’s top 34 components totaling 85.4% collectively weigh in at 35.9% of GDX.

GDXJ takes the best gold miners of GDX, greatly expands their allocations and importance, and jettisons the top-heavy deadweight of the large majors.  That makes GDXJ far superior to GDX in upside potential, rendering the latter obsolete!  There’s no gold-stock fundamental research I look forward to more than this quarterly mid-tier analysis.  These stocks trade in markets across the globe, with differing reporting requirements.

That makes amassing this valuable dataset for analysis challenging and tedious.  In different countries, the mid-tier gold miners report different data in different ways.  Half-year reporting rather than our superior US quarterly reporting is also common around the world.  That necessitates splitting reported data in half for quarterly approximations.  Every gold miner has its own reporting peculiarities, taking time to understand.

The more quarterly iterations of this complex research thread I run, the better the results get.  Q4’19 was my 15th quarter in a row of this deep fundamental GDXJ-gold-stock analysis, adding on to our massive spreadsheets.  The highlights of the mid-tier gold miners’ latest results make it into the tables below.  Blank fields mean a company hadn’t reported that particular data as of this essay’s late-Wednesday cutoff.

Each company’s symbol and weighting within GDXJ is followed by its quarterly gold production in Q4’19.  Not all of these stocks trade in the US, as GDXJ also hosts sizable Australian and Canadian contingents.  The year-over-year change in miners’ gold outputs from Q4’18 to Q4’19 reveals whether they are growing or shrinking.  Cash costs and all-in sustaining costs per ounce show how much is spent producing that gold.

Next the YoY changes are shown in the major gold miners’ key financial data including operating cash flows generated, accounting earnings, revenues, and cash on hand.  Percentage changes aren’t recorded if they would be misleading or not meaningful.  That includes data shifting from positive to negative or vice versa from Q4’18, or if derived from two negative numbers.  Then raw underlying data is included instead.

Symbols highlighted in yellow are the rare GDXJ components not also included in its big-brother GDX, while light-blue ones have newly climbed into GDXJ’s top-34 ranks over this past year.  Both conditions being true are indicated with yellow-blue checkerboarding.  The handful of true juniors GDXJ includes, those primary gold miners producing less than 75k ounces quarterly, have their production boldfaced in blue.

This entire dataset together offers a fantastic high-level read on how the mid-tier gold miners are faring.  And they enjoyed massive fundamental improvements last quarter!  Higher prevailing gold prices drove profitability sharply higher, forcing valuations sharply lower.  The awesome GDXJ gold miners haven’t looked this great operationally in years, making this recent plunge I warned about an amazing buying opportunity!

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Various authors presenting analysis and commentary on the precious metals, economy and precious metals mining markets.