Gold Miners’ Q4’18 Fundamentals

The major gold miners are grinding higher in a solid upleg, fueling growing interest in this small contrarian sector. They’ve mostly finished reporting their fourth-quarter results, revealing how they are really faring fundamentally. Collectively the world’s biggest gold miners continue to face serious challenges, which often stem from declining production. That makes stock picking more important than ever for investment success.

Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Required by the US Securities and Exchange Commission, these 10-Qs and 10-Ks contain the best fundamental data available to traders. They dispel all the sentiment distortions inevitably surrounding prevailing stock-price levels, revealing corporations’ underlying hard fundamental realities.

While 10-Qs with filing deadlines of 40 days after quarter-ends are required for normal quarters, 10-K annual reports are instead mandated after quarters ending fiscal years. Most gold miners logically run their accounting on calendar years, so they issue 10-Ks after Q4s. Since these annual reports are larger and must be audited by independent CPAs, their filing deadlines are extended to 60 days after quarter-ends.

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 $10.6b this week were a staggering 47.1x larger than the next-biggest 1x-long major-gold-miners ETF! GDX is effectively this sector’s blue-chip index.

It currently includes 45 component stocks, which are weighted in proportion to their market capitalizations. This list is dominated by the world’s largest gold miners, and their collective importance to this industry cannot be overstated. Every quarter I dive into the latest operating and financial results from GDX’s top 34 companies. That’s simply an arbitrary number that fits neatly into the tables below, but a commanding sample.

As of this week, these elite gold miners accounted for fully 94.1% of GDX’s total weighting. Last quarter they combined to mine 300.8 metric tons of gold. That was 35.2% of the aggregate world total in Q4’18 according to the World Gold Council, which publishes comprehensive global gold supply-and-demand data quarterly. So for anyone deploying capital in gold or its miners’ stocks, watching GDX miners is imperative.

The largest primary gold miners dominating GDX’s ranks are scattered around the world. 21 of the top 34 mainly trade in US stock markets, 6 in Australia, 5 in Canada, and 1 each in China and the United Kingdom. GDX’s geopolitical diversity is good for investors but makes it more difficult to analyze and compare the biggest gold miners’ results. Financial-reporting requirements really vary from country to country.

In Australia, South Africa, and the UK, companies report in half-year increments instead of quarterly. The big gold miners often publish quarterly updates, but their data is limited. In cases where half-year data is all that is made available, I split it in half for a Q4 approximation. While Canada has quarterly reporting, the deadlines are looser than in the States. Some Canadian gold miners drag their feet in getting results out.

While it is challenging bringing all the quarterly data together for the diverse GDX-top-34 gold miners, analyzing it in the aggregate to see how they are doing is essential. So each quarter I wade through all available operational and financial reports and dump the data into a big spreadsheet for analysis. The highlights make it into these tables. Blank fields mean a company hadn’t reported that data as of this Wednesday.

The first couple columns of these tables show each GDX component’s symbol and weighting within this ETF as of this week. While most of these stocks trade on US exchanges, some symbols are listings from companies’ primary foreign stock exchanges. That’s followed by each gold miner’s Q4’18 production in ounces, which is mostly in pure-gold terms. That excludes byproduct metals often present in gold ore.

Those are usually silver and base metals like copper, which are valuable. They are sold to offset some of the considerable expenses of gold mining, lowering per-ounce costs and thus raising overall profitability. In cases where companies didn’t separate out gold and lumped all production into gold-equivalent ounces, those GEOs are included instead. Then production’s absolute year-over-year change from Q4’17 is shown.

Next comes gold miners’ most-important fundamental data for investors, cash costs and all-in sustaining costs per ounce mined. The latter directly drives profitability which ultimately determines stock prices. These key costs are also followed by YoY changes. Last but not least the annual changes are shown in operating cash flows generated, hard GAAP earnings, revenues, and cash on hand with a couple of exceptions.

Percentage changes aren’t relevant or meaningful if data shifted from positive to negative or vice versa, or if derived from two negative numbers. So in those cases, I included raw underlying data rather than weird or misleading percentage changes. Companies with symbols highlighted in light-blue have newly climbed into the elite ranks of GDX’s top 34 over this past year. This entire dataset together is quite valuable.

It offers a fantastic high-level read on how the major gold miners are faring fundamentally as an industry. Unfortunately, they were generally struggling on multiple fronts in Q4’18. The more quarterly reports I read and data I gathered, the more apparent it became that many if not most of the world’s biggest gold miners continue to face serious challenges. That makes GDX itself way less attractive to gold-stock investors.

(Click on image to enlarge)

(Click on image to enlarge)

GDX’s holdings grew much more concentrated over this past year, with the top 34’s total weighting rising from 90.5% in Q4’17 to 94.1% in Q4’18. That is partially due to increased merger-and-acquisition activity driven by big gold miners trying to replace depleting production. For years many have proven unable to replenish mined gold organically, leaving buying other companies the only option to maintain mining tempos.

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