Gold Mid-Tiers’ Q2’21 Fundamentals

That doesn’t change quarter to quarter and requires about the same levels of infrastructure, equipment, and employees. The only real variable is the ore grades run through the fixed-capacity mills. Richer ores yield more gold ounces to spread the big fixed costs of mining across, lowering unit costs which boosts profitability. With adjusted production flat, the GDXJ top 25 should’ve reported flattish unit costs in Q2’21.

Cash costs are the classic measure of gold-mining costs, including all cash expenses necessary to mine each ounce of gold. But they are misleading as a true cost measure, excluding the big capital needed to explore for gold deposits and build mines. So cash costs are best viewed as survivability acid-test levels for the mid-tier gold miners. They illuminate the minimum gold prices necessary to keep the mines running.

Unfortunately, the GDXJ top 25’s average cash costs still blasted 16.0% higher from Q2’20 levels to $820 per ounce last quarter. That tied the 21-quarter peak, these costs are high. But they are really skewed there by a handful of outliers. Hecla Mining and Buenaventura have long struggled with high costs, while First Majestic Silver just bought a new gold mine it hasn’t optimized yet. Excluding them, the average is $731.

All-in sustaining costs are far superior than cash costs and were introduced by the World Gold Council in June 2013. They add on to cash costs everything else that is necessary to maintain and replenish gold-mining operations at current output tempos. AISCs give a much-better understanding of what it really costs to maintain gold mines as ongoing concerns, and reveal the major gold miners’ true operating profitability.

The GDXJ-top-25 mid-tiers also saw their average Q2’21 AISCs surge up 12.8% YoY to a lofty $1,125. That was the second-highest on record, not far behind Q1’21’s worst-ever of $1,134. But again those same three extreme-cost gold miners are really torpedoing the mean. It plunges to $1,047 without them, which is right in line with the GDX majors and excellent relative to the ongoing high prevailing gold prices.

Despite mid-June’s sharp gold plunge sparked by individual Fed officials expecting to maybe see merely a couple of rate hikes well over a couple of years into the future, gold still averaged $1,814 last quarter. That was its third-best ever, making gold mining super-lucrative. A great proxy for mid-tiers’ collective profitability is found by subtracting the GDXJ-top-25 average AISCs from that average gold price, showing unit earnings.

Even with those skewed-high $1,125 AISCs, these elite mid-tiers were still earning fat profits of $689 per ounce last quarter! That was the third-best they’ve ever seen, a stark contrast to the battered sentiment plaguing this sector. This metric did slump 3.9% YoY from Q2’20’s big number, which killed a long streak of strong unit profits growth. But that decline was trivial compared to the huge earnings jumps before it.

During the seven consecutive quarters ending in Q1’21, the GDXJ top 25’s unit profits by this measure soared 65.1%, 72.2%, 64.9%, 108.2%, 77.9%, 54.9%, and 17.4% YoY! This stellar fundamental track record is likely unparalleled anywhere else in the stock markets. It is amazing anyone can be bearish on gold stocks with that kind of earnings growth. GDX majors’ similar streak extended to eight quarters in a row!

And given gold’s awesomely bullish backdrop, its own secular bull is highly likely to continue powering higher on balance so the gold stocks will amplify its gains. In just 17.0 months since March 2020’s stock panic on governments’ pandemic lockdowns, the Fed has mushroomed its balance sheet by a ridiculous 91.5% or $3,945b! And the FOMC continues to conjure up another $120b monthly to directly monetize debt.

The Fed nearly doubling the US-dollar supply in such a short span of time is wildly unprecedented. This monetary hyper-inflation is directly driving the spiraling price inflation Americans are facing everywhere. As investors increasingly realize the Fed can’t unwind that extreme monetary excess without collapsing the stock markets it artificially inflated, they will flock back to gold. That will catapult gold-stock prices far higher.

Even the GDX major gold miners’ stocks tend to amplify material gold moves by 2x to 3x. Fundamentally superior mid-tiers and juniors well outperform that during gold uplegs, with most of their outsized gains compressing into late-upleg peakings when sentiment waxes greedy. Gold miners’ earnings soar way faster than gold prices, which fundamentally justifies the massive gains gold stocks enjoy during gold uplegs.

The GDXJ top 25’s hard financial results just reported to securities regulators under Generally Accepted Accounting Principles or other countries’ equivalents confirmed their fundamental strength last quarter. While raw numbers in this table are unadjusted, the following comparisons strip out those five jettisoned companies from Q2’20 results. The three just under the top 25 then, that climbed there in Q2’21, are added in.

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