Gold Miners’ Profits To Soar

The gold miners are likely to report blowout profits in this spinning-up Q3’19 earnings season. Higher production, stable costs, and much-higher gold prices should combine for some super-impressive results. That’s going to leave the still-undervalued gold miners much more attractive fundamentally, supporting bigger capital inflows and much-higher stock prices. Q3 should prove the gold miners’ best quarter in years.

Stock prices are ultimately dependent on underlying corporate earnings. Over the long term all stock prices gravitate towards some reasonable multiple of their underlying companies’ profits. Herd greed and fear can force stock prices to disconnect from fundamentals for some time, but eventually, they trump sentiment. So there’s nothing more important for stock-price-appreciation potential than foundational profits.

Most of the major gold miners trade in the US or Canada, and thus are required to report their results quarterly. The SEC deadline for filing 10-Q quarterly reports is 40 calendar days after quarter-ends, or November 9th for the recently-finished Q3’19. The major gold miners tend to report in the latter end of that window. The definitive list of them comes from the leading gold-stock trading vehicle and benchmark.

Of course, that is the GDX VanEck Vectors Gold Miners ETF. This week its top holdings are Newmont Goldcorp, Barrick Gold, Newcrest Mining, Franco-Nevada, and Wheaton Precious Metals. Together they account for 39.7% of GDX’s total weighting. NEM is releasing its Q3 results on November 5th, GOLD on November 6th, NCM likely in late October, FNV probably in early November, and WPM on November 14th.

Wheaton can get away with missing the US deadline because it is Canadian, while Newcrest is based in Australia where public companies report in half-year increments. It still publishes partial quarterly data. The lion’s share of gold miners’ Q3’19 results will be released in the last week of October and the first couple weeks of November. Once they’re all out in a month, I’ll dig into all the GDX majors’ results as always.

But heading into quarterly earnings seasons, it is prudent to consider how the gold miners are likely to fare. Their stocks can see strong upside if good operational and financial performances surprise traders, or vice versa if they disappoint. This imminent Q3 earnings season is likely to prove the gold miners’ best in years, which is really exciting. Generally, three major components drive this industry’s overall profits.

They are production, costs, and gold prices. The more gold mined, the lower its mining costs, and the higher prevailing gold prices, the greater the major gold miners’ earnings. For the first time in at least several years, all these are lining up very favorably for Q3. Speculators and investors who don’t closely follow this relatively-obscure contrarian sector are likely to be surprised by how good the gold miners are doing.

Gold-mining production levels are interesting. Traders don’t often think about them from an industry-wide level, generally assuming that existing gold mines’ outputs are largely steady states. Individual mines can see big production surges periodically on expansion projects, and all gold mines are inexorably depleting. But quarter-to-quarter, there’s a perception that the mined gold supply is relatively constant. But actually it’s not!

The best global fundamental data available on gold is published quarterly by the World Gold Council. The latest is current to Q2’19, as the WGC’s comprehensive and must-read Gold Demand Trends reports are typically published about a month after calendar quarters end. That latest one has quarterly global mined supply running back to 2010. Crunching those numbers reveals hidden gold-supply trends few are aware of.

Since 2010, calendar Q1s, Q2s, Q3s, and Q4s have seen average quarter-on-quarter production changes of -7.4%, +5.3%, +5.4%, and +0.5%!Q1s tend to see a sharp QoQ drop in global gold-mining output. It is then more than made up with big growth in Q2s and Q3s. Q3’s +5.4% QoQ average makes it the best quarter of the calendar year. Then in Q4s that growth largely ceases, and this whole cycle begins anew.

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