Gold Miners’ Q1’21 Fundamentals

The gold miners’ stocks have powered higher in recent months, solidifying a strong young upleg. But the extended correction low leading into this latest rally has left sector psychology fairly bearish. Traders are skeptical about gold stocks’ upside potential, wary of another serious selloff. The gold miners’ just-reported Q1’21 operating and financial results reveal whether their fundamentals support further big gains.

The first quarter of 2021 was rough for the gold stocks. Their leading and dominant benchmark and trading vehicle remains the GDX VanEck Vectors Gold Miners ETF. Its $15.3b in net assets in the middle of this week ran 31x bigger than its next-largest 1x-long major-gold-miners-ETF competitor. During Q1, GDX dropped a sizable 9.8%. The gold stocks were increasingly out of favor as gold itself also lost 10.0%.

The gold miners actually proved quite resilient last quarter, as the majors in GDX generally amplify gold’s material moves by 2x to 3x. Still, you couldn’t give away gold stocks in early March as their last extended correction finally bottomed at GDX $30.90. As these miners’ earnings leverage gold price trends, their stocks got sucked into gold’s vexing momentum selloff. But as that passed, the gold miners caught a bid.

Over the next 2.3 months into this week, GDX powered up 21.8% to $37.65. About halfway up into that run in early April, I wrote a contrarian essay making the technical case for another gold-stock upleg being underway. We filled the trading books in our newsletters with fundamentally superior gold stocks before that, straddling the sector lows. This week their unrealized gains are already running as high as +38.9%.

With GDX mean-reverting 21.8% higher in a span where gold climbed 6.6%, making for outstanding 3.3x upside leverage, you’d think traders’ sentiment would be improving. But it hasn’t much yet based on the bearish feedback I’m getting. The gold stocks just haven’t rallied long enough and high enough to overpower all the festering residual pessimism left in their last correction’s wake. That sentiment shift is still coming.

While all the bearishness has left most traders convinced the gold miners are struggling, their strong just-reported Q1’21 results dispel that. For 20 quarters in a row now, I’ve painstakingly analyzed the latest operating and financial results reported by the top 25 GDX gold miners. These include the largest in the world and now account for a commanding 88.1% of this entire market-capitalization-weighted gold-stock ETF.

Securities regulators require American companies to report their results by 40 days after quarter-ends, while Canadian ones have 45 days. The middle of this week marked 42 days since the end of Q1, so this earnings season is almost complete. While it takes a lot of time, effort, and expertise to dig into these reports, the resulting knowledge is well worth it. These are the only times gold miners’ fundamentals are clear.

This table summarizes the operational and financial highlights from the GDX top 25 during Q1’21. These major gold miners’ stock symbols aren’t all US listings and are preceded by their rankings changes within GDX over the past year. The shuffling in their ETF weightings reflect changing market caps, which reveal both outperformers and underperformers since Q1’20. The symbols are followed by current GDX weightings.

Next comes these gold miners’ Q1’21 production in ounces, along with their year-over-year changes from the comparable Q1’20. Output is the lifeblood of this industry, with investors generally prizing production growth above everything else. After are the costs of wresting that gold from the bowels of the earth in per-ounce terms, both cash costs, and all-in sustaining costs. The latter help illuminate miners’ 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 data 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.

By late in the first quarter of 2021, the gold stocks were pretty much despised. Other than a handful of hardened contrarians, the vast majority of traders wanted nothing to do with this sector. Yet despite gold and gold stocks correcting, the major gold miners were faring great fundamentally. They reported one of their best quarters ever, again proving why smart traders suppress their greed and fear to follow the data.

(Click on image to enlarge)

Last quarter the GDX-top-25 gold miners collectively produced 8,406k ounces of gold. That’s on the lighter side over the last 20 quarters where I’ve been amassing this data, ranking as 12th. That also shrunk 2.8% year-over-year from the GDX top 25’s output in Q1’20. Part of that is due to the changing rankings within this dominant sector ETF. One of the biggest climbers in GDX was China’s Zhaojin Mining.

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