Gold Miners’ Q1’20 Fundamentals

The major gold miners’ stocks have rallied dramatically out of mid-March’s stock-panic lows, soaring to new bull-market highs. Their just-reported Q1’20 operational and financial results reveal whether today’s higher gold-stock prices are fundamentally justified. They also illuminate whether this gold-stock upleg is likely to continue powering higher, despite the catastrophic economic damage from governments’ lockdowns.

With officials around the world waging a scorched-earth war against this COVID-19 pandemic, the gold miners’ latest quarterly results are more important than ever. While this earnings season covered Q1’20, most gold companies didn’t release their quarterly reports until the last couple of weeks. In them they had to disclose the ongoing impact of governments’ COVID-19 lockdowns current to those quarterlies’ release dates.

US securities regulations require American companies to report quarterly results by 40 calendar days after quarter-end, a deadline that just passed this week. In Canada where the majority of the world’s gold stocks trade, that deadline is looser at 45 days. Unfortunately this year Canadian companies were granted the ability to extend their reporting by an additional 45 days to help cope with COVID-19’s impacts.

After many years of doing deep quarterly analyses of major gold miners’ latest results, I’ve found there are always some Canadian stragglers that push their reporting right to the legal limit. This is seriously disrespectful to their shareholders, who deserve timely quarterly results released as early as possible. There’s no excuse for delaying quarterlies which don’t require independent CPAs auditing and signing off.

While the great majority of gold miners’ Q1’20 results had been released as of this essay’s data cutoff of Wednesday evening, not all of them had. But it didn’t make sense to delay this critical quarterly analysis since the usefulness of results for trading quickly decays the deeper we get into the subsequent quarter. So I went through everything available from the major gold miners mid-week, and boy was Q1 fascinating!

The definitive list of major gold-mining stocks to analyze comes from the world’s most-popular gold-stock investment vehicle, the GDX VanEck Vectors Gold Miners ETF. Launched way back in May 2006, it has an insurmountable first-mover lead. GDX’s net assets running $14.2b this week were a staggering 32.9x larger than the next-biggest 1x-long major-gold-miners ETF! GDX is effectively this sector’s blue-chip index.

While GDX’s holdings were running an excessively-big 50 stocks this week, every quarter I delve into the latest results from the top 34. That’s simply an arbitrary number that fits neatly into the tables below. And it is a commanding sample, as these world’s largest gold miners accounted for fully 94.0% of GDX’s total weighting this week. They trade in stock markets across the globe, with differing reporting requirements.

That makes amassing this valuable dataset for analysis rather challenging. In different countries, major gold miners report different data in different ways. Every individual gold miner also has its own unique reporting peculiarities, taking time to understand. Some gold miners have excellent reporting formats that are easy to understand and digest, while others seem to intentionally obscure their results complicating analysis.

Half-year reporting instead of the superior quarterly reporting found in the US and Canada is common around the world too. That necessitates splitting some numbers in half for quarterly approximations. The GDX-top-34 gold miners’ data available mid-week is summarized into highlights shown in these tables. Blank fields indicate a company hadn’t reported that particular data by this essay’s late-Wednesday cutoff.

Each company’s symbol and weighting within GDX is followed by its quarterly gold production in Q1’20. Not all of these stocks trade in the US, as GDX also hosts sizable Australian and Canadian contingents. 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.

Next, the YoY changes are shown in the major gold miners’ key financial data including operating cash flows generated, accounting earnings, revenues, and cash on hand. Percentage changes aren’t recorded if they would be misleading or not meaningful. That includes data shifting from positive to negative or vice versa from Q1’19, or if derived from two negative numbers. Then raw underlying data is included instead.

While four GDX-top-34 gold miners dragged their feet so much they hadn’t reported Q1 results by 43 days after quarter-end, they collectively account for just 2.9% of GDX’s weight. So this is an essentially-complete picture of how the major gold miners are faring despite governments’ draconian lockdowns to fight the COVID-19 pandemic. This situation is so radically unprecedented I didn’t know what I’d find.

(Click on image to enlarge)

(Click on image to enlarge)

While reading through the GDX top 34’s quarterlies, there were definitely some common recurring themes on COVID-19. The great majority of the major gold miners cited the extreme uncertainty to withdraw their 2020 production and cost guidance. That is certainly understandable and justified with the capriciousness of government officials’ decisions to force businesses to shutter. Those heavy-handed edicts change by the day.

While COVID-19 outbreaks are generally localized within countries, most governments have taken a shotgun approach of issuing blanket restrictions. So even though most gold mines are largely self-contained remote operations far from civilization, they’ve been hammered by countrywide orders to stop work. Gold miners still operating today may be forced to suspend operations tomorrow, and vice versa.

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