Gold Mid-Tiers’ Q1’21 Fundamentals

The best-performing subset of gold stocks is gathering upside momentum in a young upleg. The smaller mid-tier and junior gold miners are in this sector’s sweet spot for potential gains. Traders are starting to return with gold-stock sentiment improving, bidding the mid-tiers’ stocks higher. These gold miners just reported their latest quarterly results, which revealed strong fundamentals supporting much-higher stock prices.

Mid-tier gold miners produce between 300k to 1m ounces of gold annually, more than smaller juniors but less than larger majors. Mid-tiers are far less risky than juniors and amplify gold’s uplegs much more than majors. Their unique mix of sizable diversified gold production, material output-growth potential, and smaller market capitalizations is ideal for outsized gains. They are the best gold stocks for traders to own.

Ironically the leading mid-tier gold-stock benchmark and trading vehicle is the misleadingly named GDXJ VanEck Vectors Junior Gold Miners ETF. It has evolved to be dominated by mid-tiers, miners yielding quarterly gold outputs of 75k to 250k ounces. The true juniors GDXJ now holds only account for a small fraction of its total weighting. With $6.0b in net assets, GDXJ is the second-most-popular gold-stock ETF.

That’s about 3/8ths the size of its big-brother GDX, which is mostly controlled by larger major gold miners.GDXJ’s performance trounced GDX’s during this gold-stock bull’s last upleg, which blasted higher over 4.8 months from mid-March to early August 2020.GDXJ’s massive 188.9% skyrocketing in that short span handily bested GDX’s parallel 134.1% gains! That’s despite these ETFs sharing many component stocks.

In their current young uplegs since March 2021, GDXJ’s 23.7% gain at best so far is lagging GDX’s 28.4%. That’s not unusual, as mid-tiers’ and juniors’ massive gains often accrue later on in uplegs as they grow mature. Popular greed mounts the longer gold stocks climb on balance, motivating traders to increasingly shift capital into smaller individual miners. So the mid-tiers’ real gains are likely still coming.

For 20 quarters in a row now, I’ve painstakingly analyzed the mid-tier gold miners’ latest quarterly results right after they are reported. While GDXJ contained a ridiculous 96 component stocks this week, I’m limiting my analysis to its top 25 holdings. They command a major 63.2% of GDXJ’s total weighting, and among these elite ranks are some of the best-performing gold miners. Their quarterly results are important.

This table summarizes the operational and financial highlights from the GDXJ top 25 during Q1’21. The mid-tier miners’ stock symbols aren’t all US listings and are preceded by their rankings changes within GDXJ over the past year. The shuffling in their ETF weightings reflects changing market caps, which reveal both outperformers and underperformers since Q1’20. The symbols are followed by current GDXJ weightings.

Next comes these gold miners’ Q1’21 production in ounces, along with their year-over-year changes from the comparable Q1’20. Output is the lifeblood of this industry, with investors generally prizing production growth above everything else. After are the per-ounce costs of wresting that gold from the bowels of the earth, both cash costs and all-in sustaining costs. The latter help illuminate miners’ overall profitability.

That’s followed by a bunch of hard accounting data reported to securities regulators, quarterly revenues, earnings, operating cash flows, and resulting cash treasuries. Blank data fields mean companies hadn’t reported that particular number as of the middle of this week. The annual changes aren’t included if they would be misleading, like comparing negative numbers or data shifting from positive to negative or vice versa.

GDXJ looked to have a rough first quarter, sinking 17.0% on gold’s 10.0% extended-correction loss. But the mid-tier gold miners actually enjoyed very strong operating and financial performances, proving their weak stock prices weren’t justified. Their lengthy streak of double-digit earnings growth grew on still-high prevailing gold prices. These stocks remain way undervalued compared to their underlying businesses!

(Click on image to enlarge)

Before we dig into the GDXJ top 25’s quarterlies, this ETF’s managers made some major composition changes over this past year. Although wise decisions that have really increased GDXJ’s utility to traders, they seriously skewed year-over-year comparisons with Q1’20.Several larger components were booted out over this past year, making way for smaller ones better aligning with this ETF’s mid-tier and junior focus.

The major gold miner Kinross Gold was GDXJ’s largest position a year ago, weighing in at 7.1% of its total.KGC produced a colossal 558.8k ounces of gold in Q1’21, far above that major-miner threshold of 250k ounces per quarter. While a great miner, Kinross had no place in this “Junior Gold Miners ETF”.Now it is exclusively in the major-dominated GDX Gold Miners ETF, which certainly makes much more sense.

South Africa’s Sibanye-Stillwater was also removed, but not because it mined 249.4k ounces of gold last quarter. While historically a gold miner, SBSW has grown into the world’s largest primary platinum-group-metals producer through big acquisitions. Finally, two larger Australian mid-tiers merged Northern Star Resources and Saracen Mineral. Producing 368.3k ounces of gold in Q1’21, this new company is also a GDX exclusive.

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