Gold Mid-Tiers’ Q2’21 Fundamentals

Gold stocks’ best-performing subset has been pummeled lower recently, leaving a wake of devastated sentiment. Traders have wholesale abandoned the mid-tier and junior gold miners which are this sector’s sweet spot for upside potential during gold uplegs. These gold miners just finished reporting their latest quarterly results, revealing whether their fundamentals justify these bombed-out left-for-dead stock prices.

Gold-stock tiers are defined by their production rates. Small juniors mine less than 300k ounces of gold annually, medium mid-tiers have outputs running from 300k to 1m, large majors yield over 1m, and huge super-majors operate at vast scales exceeding 2m. Mid-tiers offer a unique mix of sizable diversified gold production, considerable output-growth potential, and smaller market capitalizations ideal for outsized gains.

Mid-tiers are far-less-risky than juniors and amplify gold’s uplegs much more than majors. Ironically the leading mid-tier gold-stock benchmark is the misleadingly named GDXJ VanEck Vectors Junior Gold Miners ETF. It has evolved to be dominated by mid-tiers yielding quarterly outputs of 75k to 250k ounces. True juniors now only account for a smaller fraction of the weighting in this second-most-popular gold-stock ETF.

Just over a third the size of its big-brother GDX major-gold-miners ETF, GDXJ has certainly had a wild ride this year. Between late March and early June, it surged 26.7% higher in a young upleg. Then in mid-June gold stocks were crushed after a distant-future-Fed-rate-hikes scare slammed gold. The resulting collateral damage to gold-stock psychology has festered ever since, forcing GDXJ 26.1% lower as of this week.

So the mid-tier gold miners are really out of favor now, plagued with serious fear and apathy. But once a quarter these companies report their latest operational and financial results, hard fundamental data that burns through obscuring sentiment fogs. For 21 quarters in a row now, I’ve painstakingly analyzed all this from each of the top 25 GDXJ holdings to better understand how mid-tier gold miners are actually faring.

This table summarizes the operational and financial highlights from the GDXJ top 25 during Q2’21. 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 Q2’20. The symbols are followed by current GDXJ weightings.

Next comes these gold miners’ Q2’21 production in ounces, along with their year-over-year changes from the comparable Q2’20. 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.

Production boldfaced in blue shows the actual juniors, primary gold miners that produced less than 75k ounces last quarter. Although you wouldn’t know it from their withered stock prices, GDXJ mid-tiers are thriving in this ongoing high-prevailing-gold-price environment. Fearful herd sentiment has driven a huge disconnect between the mid-tiers’ operating performances and their valuations. That anomaly can’t last long.

GDXJ’s weightings have seen tremendous changes during this past year, as evident in the big position swapping in these ranking shifts. Compare that to my similar essay last week analyzing the top 25 GDX gold majors’ latest quarterly results. GDXJ’s big-brother ETF experienced vastly less flux. This rejiggering is happening for good reason, GDXJ’s managers are pruning out super-major gold miners that don’t belong.

In the years I’ve been working on this quarterly-results research thread and writing these essays, my main ongoing criticism was GDXJ contained too many larger major gold miners. Those should be exclusive to GDX, where they belong. Over this past year, the super-majors Kinross Gold and Gold Fields were finally booted. Their Q2’21 gold production was enormous at 538k and 563k ounces, so they weren’t GDXJ material.

Another large GDXJ holding was rightfully kicked too, Sibanye-Stillwater which is now a primary platinum miner. Together these three companies accounted for a hefty 17.5% of GDXJ’s entire weighting a year ago in the comparable Q2’20. So removing them left a big vacuum to fill, which was done by boosting the weightings in the rest of GDXJ’s components. This is excellent news, really upping GDXJ’s utility going forward.

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