Gold Miners’ Q2’21 Fundamentals

The gold miners’ stocks have suffered a weak few months, pounded by a couple of big gold-futures purges on distant-future-Fed-rate-hike scares. The resulting bearishness flaring left this contrarian sector deeply out of favor. But with prevailing gold prices still high, the gold miners are really thriving fundamentally. Their just-reported Q2’21 results were impressive, driving their valuations even deeper into bargain territory.

The GDX VanEck Vectors Gold Miners ETF is this sector’s dominant benchmark and trading vehicle. It commanded $13.9b in net assets this week, dwarfing its next-largest 1x-long major-gold-miners-ETF competitor by a whopping 25x!GDX rallied a modest 4.6% in Q2 proper, but that sedate performance masks a wild ride within. GDX blasted up 22.1% quarter-to-date by mid-May, then collapsed 14.4% into quarter-end!

The major gold stocks were enjoying a strong young upleg early on, with GDX powering 28.4% higher in 2.5 months. Sentiment was really improving, starting to entice speculators and investors back to this little high-potential sector. Then mid-June’s FOMC meeting acted like a sledgehammer to the skull for gold, and the gold stocks amplified its sharp losses. That whole sorry episode certainly wasn’t justified at all.

The Fed didn’t slow its huge $120b per month of quantitative-easing money printing, nor did it raise the federal-funds rate. That FOMC statement didn’t even hint at either coming QE tapering or rate hikes, it implied full QE and ZIRP would continue indefinitely. Instead, top Fed officials’ individual outlooks on future rates, which the Fed chair himself warned are a poor forecaster and not FOMC policy, changed slightly.

Just 6 out of 18 top Fed officials thought the Fed might have to hike the FFR a total of 50 basis points by the end of 2023! That’s merely a couple of quarter-point hikes well over a couple of years into the future, an eternity away in market time. Yet that total nothingburger unleashed such fierce leveraged gold-futures selling that it bludgeoned gold 5.2% lower in just three trading days. So GDX plunged 9.2% in sympathy.

Ever since that ridiculous overreaction interrupted these latest uplegs, traders have widely assumed this sector is doomed. Then bearishness surged again after the latest monthly US jobs report in early August. A strong headline number solely due to colossal seasonal adjustments led gold-futures speculators to again fear distant-future rate hikes into 2023. So gold and GDX plunged 4.1% and 5.4% in two trading days!

Price action drives sentiment, with traders extrapolating recent trends out into infinity. How any sector is viewed depends on how it has just fared. But that highly emotional herd outlook based on popular greed and fear is very misleading. Nothing cuts through that obscuring fog like the hard operating and financial results gold miners report after every quarter. These core fundamentals reveal where gold stocks ought to go.

For 21 quarters in a row now, I’ve been painstakingly analyzing this key data released by the top 25 gold miners of GDX. These include the world’s largest major gold miners, which accounted for 87.6% of that entire ETF’s weighting in the middle of this week. Their quarterly results are mostly in, with securities laws requiring US companies to report by 40 days after quarter-ends while Canadian ones have 45 days.

This table summarizes the operational and financial highlights from the GDX top 25 during Q2’21. These major gold miners’ stock symbols aren’t all US listings, and are preceded by their rankings changes within GDX over this past year. The shuffling in their ETF weightings reflects changing market caps, which reveal both outperformers and underperformers since Q2’20. The symbols are followed by current GDX weightings.

Next comes these gold miners’ Q2’21 production in ounces, along with their year-over-year changes from the comparable Q2’20. 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.

Given those couple recent gold-futures selling purges hammering gold and its miners’ stocks lower, you’d think they must be struggling fundamentally. Nothing could be farther from the truth! The GDX majors achieved big production growth last quarter, held the line on costs, and enjoyed soaring revenues and earnings. That left the gold stocks seriously undervalued, great bargains for hardened contrarian traders.

The upper ranks of elite gold miners seldom change much, as it is exceedingly difficult to grow to the scale of the super-majors. I’d define that as producing over 500k ounces per quarter. Major-dom starts at 250k quarterly, junior-dom ends at 75k, and everything in between is the mid-tier realm. One of the biggest problems at the major-plus level is material output growth is hard to achieve operating at those scales.

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