Gold Miners’ Q4’20 Preview

The major gold miners’ upcoming earnings season should prove amazing. They enjoyed some of the highest prevailing gold prices ever witnessed last quarter, which sure ought to fuel massive earnings growth. Especially if their output levels and production costs stayed fairly stable, which is likely based on precedent. Incredibly-strong fundamentals should attract more investment capital, driving stock prices higher.

Four times a year, American and Canadian publicly-traded companies are required to publish financial reports for their shareholders. These quarterly results are highly anticipated by investors, providing the best-available fundamental data and analyses revealing how companies are faring. The better their core revenues, earnings, and operating-cash-flow generation, the greater their underlying stocks’ upside potential.

Normally gold miners’ earnings seasons where they report their latest financial and operational results run from about 3 to 6 weeks after quarter-ends. US securities laws require companies to disclose their latest quarters within 40 calendar days after they finish. And way more gold stocks trade in Canada, which has a more relaxed deadline of 45 days. But both countries allow more time for annual reports following year-ends.

These full-year results including Q4s are much more comprehensive than interim quarterly results. They not only include much more data and analyses but have to first be audited by CPA firms before being released. So regulators grant more time for annual reports to be filed, 60 days after year-ends in the US and a whopping 90 days in Canada! Thus Q4 earnings seasons start later and run longer than normal quarters’.

So how major gold miners as a sector performed last quarter won’t be fully apparent until around mid-March. That’s nearing the end of Q1, which is a long time for investors to wait for Q4 results. But a handful of key variables considered together have proven excellent predictors of gold miners’ quarterly results. They are prevailing gold prices, overall world gold-mining production, and average all-in sustaining costs.

Average prevailing gold prices require no estimates, they are set in stone right after quarter-ends. Gold’s overall performance across Q4’20 was lackluster, it only edged up 0.6%. That was because this metal spent 2/3rds of last quarter grinding lower on balance in a healthy bull-market correction. But despite falling 5.9% quarter-to-date by the end of November, gold still averaged a lofty $1,876 on close during Q4’20.

That was actually the second-highest quarterly average on record, only trailing the preceding Q3’20’s $1,912!With Q4’s prevailing gold levels only running 1.9% under that, the major gold miners could hardly ask for a better gold-price environment. Their earnings are overwhelmingly dependent on where gold is trading. Generally, the higher the average gold prices, the greater the profits earned producing this metal.

Gold miners’ quarterly earnings and operating cash flows are naturally highly correlated with the amounts of gold they mined during that quarter. Output changes vary considerably among companies and are often difficult to predict because so much is constantly changing. Mines chew through different grades of ore, maintenance slows operations, old mines deplete, and new expansions and mines are brought online.

For years now, I’ve analyzed many dozens of gold miners’ latest quarterly results right after their earnings seasons wrap up. The best constantly-updated ranked list of major gold miners comes from the GDX VanEck Vectors Gold Miners ETF. GDX utterly dominates the gold-stock-ETF market, with its net assets of $15.7b this week commanding fully 64% of all the capital deployed in all the US-traded gold-stock ETFs!

Following every quarter, I wade through and analyze the latest financial and operational results reported by the 25 largest GDX component companies. These include the world’s biggest gold miners, together accounting for about 6/7ths of this ETF’s total weighting. While individual gold miners’ output changes vary widely quarter-to-quarter, the GDX top 25’s total generally tends to track overall world gold production.

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