Gold Mid-Tiers’ Q1’20 Fundamentals

The mid-tier gold miners in the sweet spot for stock-price upside potential have enjoyed a massive run since mid-March’s stock-panic lows. They’ve already more than doubled in the couple months since! Their just-released Q1’20 operational and financial results reveal whether these huge gains are righteous fundamentally, whether this uptrend is likely to persist, and how COVID-19 shutdowns are affecting gold miners.

Interestingly the leading mid-tier gold-stock ETF is the famous GDXJ VanEck Vectors Junior Gold Miners ETF. Despite its misleading name, GDXJ is overwhelmingly dominated by mid-tier gold miners. They produce 300k to 1m ounces of gold annually, between the smaller juniors and larger majors. The mid-tiers offer an excellent mix of sizable diversified production, output-growth potential, and smaller market caps.

The high-potential mid-tier gold miners were coming back into favor in late February, with GDXJ hitting a 3.4-year high of $44.97. But gold and its miners’ stocks were soon sucked into March’s brutal stock panic, driven by economic fears from governments’ COVID-19 shutdowns. Over the next several weeks, GDXJ plummeted a catastrophic 50.7% to $22.17 in mid-March! That violently eviscerated traders trapped unaware.

They didn’t have to be though, we were all out gold stocks leading into that full-on crash. Weeks before GDXJ collapsed 33.7% in its final couple extreme capitulation days in mid-March, I warned about the big risks in gold and gold stocks. In mid-February I pointed out gold stocks had stalled, concluding “caution is wise given gold’s situation, with selling much more likely than buying.”The parallel gold surge looked peculiar.

The pre-panic gold buying into late February wasn’t coming from normal capital inflows from investors and gold-futures speculators. Thus I warned, “gold’s staying power up here is questionable”. While I sure didn’t expect a stock panic, then we advised our subscribers to short gold stocks with specific gold-stock leveraged-inverse-ETF and GDXJ-puts trades. Those were great positions to have as gold stocks collapsed!

We started aggressively buying and recommending fundamentally-superior mid-tier gold stocks again two trading days after GDXJ’s deep stock-panic low in mid-March. We’ve continued redeploying since, which has built gorgeous trading books with huge unrealized gains. By this week, GDXJ had skyrocketed an incredible 117.1% higher in just 2.2 months to hit $48.12!That’s a fresh 3.7-year high for mid-tier gold miners.

While this violent post-panic V-bounce has proven exceedingly profitable, from late February to this week GDXJ is only up 7.0%. So the last couple months’ extreme rally is mostly a mean-reversion recovery out of extreme lows. Nevertheless, reviewing the elite mid-tier gold miners’ latest quarterly operational and financial results is super-important to see how they’re faring fundamentally despite COVID-19 shutdowns.

The definitive list of elite mid-tier gold miners to analyze comes from GDXJ. Back in the first half of 2016 in this bull’s maiden upleg, GDXJ enjoyed enormous capital inflows from investors chasing juniors. But its holdings grew so big that it risked running afoul of Canadian securities laws for owning individual stocks. So GDXJ was forced to shift its focus to the mid-tier realm, which translates to 75k to 250k ounces mined quarterly.

Every quarter I wade through the latest results from GDXJ’s 34 largest components to get a fundamental read on the leading mid-tiers’ performances. That’s simply an arbitrary number that fits neatly into the tables below, but a commanding sample at 80.3% of GDXJ’s total weighting. This week GDXJ owned a whopping 79 stocks, which is way over-diversified. I couldn’t hope to digest that many quarterly reports.

Further undermining GDXJ still being advertised as a “Junior Gold Miners ETF”, its holdings are mostly a subset of the same mid-tiers included in its big-brother GDX gold miners ETF. Fully 23 of the GDXJ-top-34 components are also GDX-top-34 ones! The GDXJ top 34 accounted for 31.0% of the weighting of the GDX top 34. So GDXJ essentially takes nearly 1/3rd of GDX gold miners and expands their weighting to 4/5ths.

This is super-beneficial to investors, cutting out the top-heavy deadweight of the 8 largest gold miners that dominate GDX at 61.6% of its total weighting. Those giants have simply grown too large to enjoy superior upside during major gold uplegs. They can’t rapidly expand their massive production bases, and their stocks’ market capitalizations are so huge their inertia requires enormous capital inflows to move higher.

After having intensely studied and actively traded the gold miners full-time for over a couple decades now, I love the mid-tiers. They are truly in the sweet spot for gold-stock-price upside potential. Unlike smaller juniors, mid-tiers have multiple mines spinning off big cash flows and diversifying single-mine risks. And unlike majors, the mid-tiers can really boost their production by expanding existing mines or building new ones.

GDXJ’s upper ranks are a diverse lot, with sizable contingents of gold miners trading in the US, Australia, Canada, and the UK. That makes amassing their quarterly results challenging, as they all offer different data presented in different ways. That includes half-year reporting instead of quarterly in many countries, necessitating splitting some data in half. Plenty of individual-company peculiarities take time to understand.

The more quarterly iterations of this complex research thread I run, the better the results get. Q1’20 was my 16th 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 Q1’20. Since not all of these stocks trade in the US, some symbols are primary listings from foreign exchanges. The year-over-year change in miners’ gold outputs from Q1’19 to Q1’20 reveals whether they are growing or shrinking. Cash costs and all-in sustaining costs per ounce show how much is spent producing that gold.

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