The
mid-tier and junior gold miners in this sector’s sweet spot for
upside potential are finishing reporting their latest quarterly
results. Those have proven spectacular, with these
fundamentally-superior smaller gold producers delivering big on all
fronts. The potent combination of growing production, lower mining
costs, and near-record gold prices fueled huge windfall profits. So
mid-tiers shouldn’t stay undervalued for long.
The
leading mid-tier-gold-stock benchmark is the GDXJ VanEck Junior Gold
Miners ETF. With $4.3b in net assets mid-week, it remains the
second-largest gold-stock ETF after its big brother GDX. That is
dominated by far-larger major gold miners, though there is much
overlap between these ETFs’ holdings. Still misleadingly named,
GDXJ is overwhelmingly a mid-tier gold-stock ETF with little
weighting allocated to juniors.
Gold-stock tiers are defined by miners’ annual production rates in
ounces of gold. Small juniors have little sub-300k outputs, medium
mid-tiers run 300k to 1,000k, large majors yield over 1,000k, and
huge super-majors operate at vast scales exceeding 2,000k.
Translated into quarterly terms, these thresholds shake out under
75k, 75k to 250k, 250k+, and 500k+. Today only two of GDXJ’s 25
biggest holdings are true juniors!
Their Q4 production is highlighted in blue in the table below.
Juniors not only mine less than 75k ounces per quarter, but their
gold output generates over half their quarterly revenues.
That excludes both primary silver miners producing byproduct gold,
and royalty and streaming companies that purchase future gold output
for big upfront payments used to finance mine builds. But mid-tiers
often make better investments.
These gold miners dominating GDXJ offer a unique mix of sizable
diversified production, excellent output-growth potential, and
smaller market capitalizations ideal for outsized gains.
Mid-tiers are less risky than juniors, while amplifying gold uplegs
much more than majors. Our newsletter trading books are now filled
with fundamentally-superior mid-tiers and juniors, smaller gold
miners which we’ve long specialized in at Zeal.
While the mid-tiers’ fundamentals are stellar as you’ll soon see,
GDXJ’s recent performance has been wanting. Ultimately gold stocks
are leveraged plays on gold, and its latest upleg was born back in
early October. By early December, gold had surged 13.8% to its
first new nominal
record close in 3.3 years on
gold-futures
short-covering buying. GDXJ only rallied 27.9% in that
early-upleg span, mere 2.0x upside leverage.
After that gold consolidated high before
slipping into a
mild pullback into mid-February. Gold just gave back 3.9%,
yet GDXJ plunged 21.1% as gold stocks fell out of favor again!
The extreme euphoria and greed spewing out of the
general-stock-market bubble were overshadowing alternative
investments. Gold bounced back strong, surging 9.6% over the
subsequent few weeks into mid-March. But mid-tiers kept lagging.
GDXJ
merely rebounded 18.5%, amplifying gold an even-worse 1.9x. At best
in mid-March, gold’s upleg had powered 19.9% higher achieving
nine new nominal
record closes! Yet GDXJ was only up 19.6%, just pacing gold.
Much riskier than their metal, gold stocks need to way outperform to
compensate traders for their big additional operational, geological,
and geopolitical risks that are heaped on top of gold price trends.
For
31 quarters in a row now, I’ve painstakingly analyzed the latest
operational and financial results from GDXJ’s 25-largest component
stocks. Mostly mid-tiers, they now account for 64.7% of this ETF’s
total weighting. While digging through quarterlies is a ton of
work, understanding smaller gold miners’ latest fundamentals really
cuts through the obscuring sentiment fogs shrouding this sector.
This research is essential.
This
table summarizes the GDXJ top 25’s operational and financial
highlights during Q4’23. These gold miners’ stock symbols aren’t
all US listings, and are preceded by their rankings changes within
GDXJ over this past year. The shuffling in their ETF weightings
reflects shifting market caps, which reveal both outperformers and
underperformers since Q4’22. Those symbols are followed by their
recent GDXJ weightings.
Next
comes these gold miners’ Q4’23 production in ounces, along with
their year-over-year changes from the comparable Q4’22. 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 disclosed 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.
The
mid-tier gold miners’ overall Q4’23 performance again proved
spectacular! These sweet-spot-for-upside smaller gold stocks
grew their production while slashing mining costs. That along with
surging prevailing gold prices fueled massive earnings jumps, both
per-ounce and bottom-line. Last quarter was undoubtedly one of the
best the mid-tier and junior gold stocks ever reported, which should
attract back investors.
 
Production growth trumps everything else as the primary mission for
gold miners. Higher outputs boost operating cash flows which help
fund mine expansions, builds, and purchases, fueling virtuous
circles of growth. Mining more gold also raises profitability,
lowering unit costs by spreading big fixed operational expenses
across more ounces. The GDXJ-top-25 gold miners delivered again
for the seventh quarter in a row!
Their collective production grew 2.8% YoY to 3,543k ounces last
quarter. That trounced the larger super-majors and majors
dominating GDX, which I
analyzed in
another essay last week. In Q4’23 the GDX-top-25 gold miners
suffered a big 4.6%-YoY output drop to 8,845k ounces. The World
Gold Council reported overall global gold-mining output in Q4
slipped 1.7% YoY to 29,925k. So the mid-tiers are outperforming.
But
not as much as their aggregate production implies, as fully 14 of
these GDXJ-top-25 stocks reported lower Q4 production. The biggest
output growth came from GDXJ’s largest component, Pan American
Silver which just grew into a major gold miner over this past
year. Its Q4’23 gold production soared up 63.0% YoY, mostly because
it acquired Yamana Gold at the end of Q1’23. PAAS’s output shot up
104k ounces.
That
exceeded the GDXJ top 25’s total growth of 96k, so without that
buyout aggregate production would have shrunk. But it still
would’ve been much better than the GDX-top-25 majors. Some of the
GDXJ mid-tiers reported great growth, including Centamin’s and
Eldorado Gold’s surging 21.8% and 11.4% YoY. A sizable fraction of
these elite mid-tiers and juniors have expansions going live this
year that will boost output.
Equinox Gold is a great example, launching one of the biggest
assaults into GDXJ’s upper ranks over this past year. One of my
favorite mid-tiers which we’ve long owned, EQX operates seven gold
mines. Later this year, its eighth and biggest-ever mine-build is
going live. Equinox’s stake of average annual output is forecast
near 240k ounces, big growth is coming. 2024’s midpoint guidance is
25% above 2023’s actual production.
And
2024 only includes a half-year of that new mine’s output, as it
isn’t spinning up until the second half of this year. Even better,
it is a low-cost operation with all-in sustaining costs projected
near fantastic $850-per-ounce levels! That will drag down EQX’s
higher overall AISCs, boosting profitability along with its
production for years to come. One of Canada’s largest gold mines,
it has a 14-year initial projected life.
Similar great growth stories aren’t particularly rare among smaller
gold miners, helping make them such compelling investments. After
decades analyzing and trading these high-potential stocks, I love
learning about expansions and mine-builds nearing production.
Because it is so labor-intensive to stay abreast of many dozens of
smaller gold miners, surging production and falling costs tend to
surprise most traders.
They
then rush to buy after great quarterlies reflect new projects coming
online, bidding stock prices way higher. Our newsletter trading
books are full of growing mid-tiers and juniors. OceanaGold is
another example, producing 477k ounces of gold in 2023 at $1,587
AISCs. But OGC has already guided to 2024, 2025, and 2026 midpoints
of 540k, 570k, and 650k ounces, with AISCs falling near $1,538,
$1,500, and $1,325!
While GDXJ’s smaller gold miners are far-superior to GDX’s larger
ones, there is still too much overlap between these sibling ETFs.
Fully 15 of these GDXJ-top-25 components are also GDX-top-25 ones,
with 5 more in GDX’s lower ranks. These mutual holdings weigh in at
56.9% of GDXJ, but just 26.5% of GDX. The GDXJ top 25 are mostly
clustered between GDX’s 11th to 32nd weightings, which is a big
advantage.
GDXJ
effectively lops off the ten biggest GDX components, which
are dominated by super-majors. As I analyzed in my essay last week
on the GDX top
25’s Q4’23 results, those are burdened with crushing
deadweight. That means super-majors perpetually unable to overcome
depletion to grow their outputs organically, so they resort to
expensive corporate acquisitions. Yet still their unit mining costs
inexorably climb!
Gold-stock portfolios carefully built with handpicked
fundamentally-superior individual mid-tier and junior gold
miners will yield the best gains by far during major gold uplegs.
That’s long been our specialty at Zeal, with our newsletters
detailing our active portfolios and their buying and selling. But
if owning a single sector ETF somehow better suits you, GDXJ is a
far-better option than GDX. I’d totally avoid the latter.
Unit
gold-mining costs are generally inversely proportional to
gold-production levels. That’s because gold mines’ total operating
costs are largely fixed during pre-construction planning stages,
when designed throughputs are determined for plants processing
gold-bearing ores. Their nameplate capacities don’t change quarter
to quarter, requiring similar levels of infrastructure, equipment,
and employees to keep running.
So
the only real variable driving quarterly gold production is the
ore grades fed into these plants. Those vary widely even within
individual gold deposits. Richer ores yield more ounces to spread
mining’s big fixed expenses across, lowering unit costs and boosting
profitability. But while fixed costs are the lion’s share of gold
mining, there are also sizable variable costs. That’s where recent
years’ raging inflation hit hard.
Cash
costs are the classic measure of gold-mining costs, including all
cash expenses necessary to mine each ounce of gold. But they are
misleading as a true cost measure, excluding the big capital needed
to explore for gold deposits and build mines. So cash costs are
best viewed as survivability acid-test levels for the mid-tier gold
miners. They illuminate the minimum gold prices necessary to keep
the mines running.
The
GDXJ top 25 reporting cash costs as of the middle of this week
averaged $1,004 per ounce, which shrunk a slight 0.8% YoY. That
made for the third quarter in a row these elite mid-tiers
reported declining direct mining costs. And these are skewed high
by Hecla Mining, which has always struggled with very-high-cost
operations. Excluding its crazy-high $1,702, the rest of these GDXJ
top 25 averaged $957 last quarter.
All-in sustaining costs are far superior than cash costs, and were
introduced by the World Gold Council in June 2013. They add on to
cash costs everything else that is necessary to maintain and
replenish gold-mining operations at current output tempos.
AISCs give a much-better understanding of what it really costs to
maintain gold mines as ongoing concerns, and reveal the mid-tier
gold miners’ true operating profitability.
The
GDXJ top 25 knocked it out of the ballpark on the AISC front, with
Q4’23’s average plunging 8.1% YoY to $1,325 per ounce! That
also proved these elite mid-tiers’ third quarter in a row of
declining AISCs. Excluding Hecla’s endless high-cost morass, that
average drops to an even-better $1,282. Comparing the GDXJ top 25’s
AISCs to the larger GDX top 25’s helps illustrate mid-tiers’
fundamental superiority.
While the GDX majors’ average AISCs were slightly lower last quarter
at $1,317, they climbed 3.9% YoY. During the last 21 quarters, the
GDX top 25 have only reported a single quarter of retreating
AISCs! The super-majors dominating GDX argue their vast operations
give them economies of scale on management. Yet smaller gold miners
with way-fewer mines are achieving similar AISCs and much-better
falling-cost trends.
Considered another way, the GDXJ top 25’s $1,325 AISCs were 80% up
into their 31-quarter range of $860 to $1,442. Mining costs
naturally climb over time, reflecting both inflation and higher
prevailing gold prices making higher-cost deposits more economical
to tap. In Q4 the GDX top 25’s AISCs were 85% up into their own
31-quarter range of $825 to $1,405. Smaller gold miners are
outperforming on the costs front.
And
the mid-tiers’ $1,325 average AISCs in Q4 made for fat profits with
near-record average gold prices. Those soared 14.2% YoY to $1,976
last quarter, just a hair under Q2’23’s record of $1,978!
Subtracting those quarterly-average GDXJ-top-25 AISCs from
quarterly-average gold prices yields a great proxy for smaller gold
miners’ unit earnings. The resulting $651 per ounce
skyrocketed a stupendous 125.7% YoY!
That
epic doubling-plus made for the strongest annual unit profits growth
in at least the last 31 quarters. And it followed another
massive 106.4%-YoY skyrocketing in the preceding Q3’23. And that
streak of gargantuan earnings growth is almost certain to continue
in this current almost-over Q1’24. Quarter-to-date, gold has
averaged a dazzling new record $2,060 on close! And the mid-tiers
are forecasting similar AISCs.
Their average full-year-2024 AISC guidances ran $1,334 per ounce,
which would yield massive $726-per-ounce profits this quarter! That
would make for more huge 51.9%-YoY growth! I suspect full-year
AISCs will come in lower, closer to the bottom of forecast ranges
than these midpoints. These elite mid-tiers have plenty of new
mines and expansions coming online this year, which should soon help
drive down costs.
Today’s battered mid-tier gold-stock prices are far from reflecting
these awesome fundamentals. A good chunk of these GDXJ top 25 are
trading at single-digit or low-double-digit trailing-twelve-month
price-to-earnings ratios today, even without Q4’s windfall
profits fully factored in! And as earning continue rising,
undervaluations will deepen unless smaller gold miners enjoy a
long-overdue massive mean reversion higher.
While swirling winds of sentiment bully around stock prices over the
short term, eventually they will reflect some reasonable multiple of
underlying corporate earnings. Warren Buffett’s renowned mentor,
legendary investor Benjamin Graham, famously said markets are voting
machines over the short run but ultimately weighing machines over
the long term. Gold-stock prices need to start normalizing
relative to their earnings.
The
GDXJ top 25’s hard accounting results under Generally Accepted
Accounting Principles also looked fantastic last quarter.
Their total revenues soared 16.8% YoY to $8,563m, crushing the GDX
top 25’s mere 4.6%-YoY sales growth. The mid-tiers’ 17%ish surge
tracks perfectly with 3%ish production growth combined with Q4’s
average gold prices shooting about 14% higher. And bottom-line
earnings looked way better.
In
Q4’23 the GDXJ top 25’s total accounting earnings skyrocketed
81.9% YoY to $463m! That compares to colossal $3,484m losses
reported by the GDX-top-25 majors, mostly driven by super-majors’
huge non-cash writedowns. These gigantic gold miners squander
shareholders’ money overpaying to acquire other gold miners. Then
they later have to flush those resulting “goodwill” premiums through
their income statements.
That
further injures super-majors’ shareholders, as institutional
investors seeing such huge accounting losses avoid buying those
companies’ shares. The GDXJ-top-25 mid-tiers did have some Q4
writedowns too, but nowhere near the super-majors’ embarrassing
scale. These writedowns were also for better reasons than paying
too much to buy out companies, such as impairments from mining-law
and tax-law changes.
Without Q4’23’s larger unusual noncash charges, the mid-tiers’ total
accounting earnings soared way up to $921m. Those are
understated too, as one larger British gold stock Endeavour Mining
isn’t reporting its Q4 results until March 27th. This smaller major
is also projecting good 11.9% midpoint output growth near 1,200k
ounces in 2024 as two big new projects come online next quarter,
keeping AISCs low around $995!
Comparable Q4’22 GDXJ-top-25 earnings excluding big writeoffs then
were closer to $1,040m, implying that mid-tier operating earnings
declined about 11.4%. That’s still way better than the super-majors
and their endless goodwill writeoffs. Because bottom-line
mid-tier earnings nearly doubled last quarter, these gold
stocks’ valuations are heading considerably lower. Again their
stock prices need to mean revert far higher.
Last
quarter’s operating-cash-flows generation was also very strong,
blasting up 40.6% YoY to $2,375m for the GDXJ top 25. That funneled
lots of cash into their coffers to continue expanding existing mines
and build new ones. They’ve been investing those cash flows, as
evident in their total cash treasuries slipping 3.7% YoY to
$6,173m. Once EDV reports its Q4 results, that total will surge
into growth territory.
These elite mid-tiers and juniors achieved higher production, lower
all-in sustaining costs, and big growth in revenues, earnings, and
operating cash flows last quarter! Their implied per-ounce profits
more than doubled, while their hard accounting ones almost did.
That made for a heck of a quarter for these smaller
fundamentally-superior gold miners. Sooner or later investors will
figure this out and flood into these stocks.
By
advancing great gold projects into mines and growing relatively
fast, mid-tiers and juniors are the gold-production pipeline
ultimately feeding the majors. We research extensively to find
fundamentally-superior smaller gold miners, then ride them until
gold and gold stocks get unsustainably overbought or they are
acquired. Smaller gold stocks can easily double, triple, or more
during major gold uplegs, multiplying wealth!
Successful trading demands always staying informed on markets, to
understand opportunities as they arise. We can help! For decades
we’ve published popular
weekly
and
monthly
newsletters focused on contrarian speculation and investment. They
draw on my vast experience, knowledge, wisdom, and ongoing research
to explain what’s going on in the markets, why, and how to trade
them with specific stocks.
Our
holistic integrated contrarian approach has proven very successful,
and you can reap the benefits for only $10 an issue. We extensively
research gold and silver miners to find cheap fundamentally-superior
mid-tiers and juniors with outsized upside potential.
Sign up
for free e-mail notifications when we publish new content. Even
better,
subscribe today
to our acclaimed newsletters and start growing smarter and richer!
The
bottom line is mid-tier gold miners just reported their second
spectacular quarter in a row. They are doing everything right, led
by growing their production while lowering mining costs. That
combined with near-record average gold prices fueled skyrocketing
profits. Smaller gold miners’ fantastic operating performances were
reflected in great accounting results, a stark contrast to the
super-majors’ endless struggles.
And
this awesome soaring-earnings trend is set to continue. The
mid-tiers are forecasting similar mining costs this year, while
prevailing gold prices continue to surge to new records. So their
earnings are going to grow even fatter. These great fundamentals
will eventually attract back investors, fueling a dramatic mean
reversion higher in undervalued gold-stock prices. More gold record
highs will accelerate this process. | 
