Something odd is happening in the precious metals miners space. And it’s presenting investors with an extraordinary opportunity. To understand what I mean we first need to assess the macro environment for these companies.
Let’s wind the clocks back a year.
Gold was trading at $3,200 per ounce. Silver was trading at $35 per ounce.
Today gold is over $4,500 per ounce and silver is around $75 per ounce. These are truly historic gains of 40% and 114% in a year, respectively.
And they represent a seismic shift for the precious metals miners complex.
As Tavi Costa recently noted, precious metals miners now have the highest profit margins of any sector in the stock market, beating even Tech. The average senior producer is mining gold at an all-in cost of around $1,800 an ounce… and selling its ore for more than double that.
Put simply record, or near record gold prices mean record margins and record cash flow.
And the stocks are still cheap.
Gold majors like Newmont (NEM), Agnico Eagle (AEM) (AEM.TO) and Barrick (GOLD) (B) trade at Forward Price to Earnings (P/E) multiples of 10, 13, and 10, respectively. Five years ago, these multiples were twice as high. These companies are literally printing money and increasing returns to shareholders via buybacks and dividends.
Mid-tier companies are even cheaper. El Dorado Gold (EGO) trades at a forward P/E of 7. B2Gold (BTG) trades at a forward P/E of 5. IAMGOLD (IAG) trades at a forward P/E of 7. Five years ago they were significantly higher.
These kinds of situations don’t last for long. Capital flows to where it’s treated best, and precious metals miners are one of the most profitable, undervalued sectors in the market.
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