The
gold stocks’ latest earnings season is just getting underway, and
should prove fantastic. The miners are set to report their
most-profitable quarter in years, primarily driven by much-higher
gold prices. These companies have also mostly forecast holding the
line on costs, helping earnings amplify gold’s breakout surge. This
sector’s strong-and-improving fundamentals should increasingly
attract back institutional investors.
For
31 quarters in a row now, I’ve painstakingly analyzed the latest
results reported by GDX’s major gold miners. This VanEck Gold
Miners ETF dominates this sector, commanding 28.9x the assets of its
next-largest 1x-long major-gold-miners-ETF competitor! Right after
every earnings season, I dig into the latest quarterly reports from
GDX’s 25 largest component stocks including the world’s biggest gold
miners.
Their new Q1’24 earnings season starts this week and runs until
mid-May. Gold stocks listing in the US have 40 calendar days after
quarter-ends to file their latest quarterlies with securities
regulators. Up in Canada which is the epicenter of the gold-mining
universe, that deadline is 45 days. After many years of digging
into gold miners’ quarterly and annual reports, some key sector
results are predictable in advance.
While gold mining is complex and challenging, gold-mining earnings
are fairly simple. Profits are just the difference between
prevailing gold prices and the costs of producing gold. So a great
proxy for sector earnings subtracts the GDX-top-25 gold miners’
average all-in sustaining costs from quarterly-average gold prices.
That reveals the major gold miners’ collective profits per ounce,
illuminating key earnings trends.
While the cost side of this equation requires some estimates, gold
prices don’t. The yellow metal surged a hefty 7.6% higher in Q1, as
its remarkable
breakout surge gathered steam. After a
mild pullback
in the first half of Q1 on a US Dollar Index rally, gold blasted
higher in the second half. Fully 10 new
nominal all-time
record highs were achieved in March alone! That boosted last
quarter’s average gold price to $2,072.
That
proved the highest ever witnessed, way over Q2’23’s $1,978 and
Q4’23’s $1,976. Q1’24’s superior average blasted 9.5% higher
year-over-year from the comparable Q1’23! Gold-mining profits
naturally leverage prevailing gold prices, growing much faster than
their metal climbs. So 10%-better gold prices ought to translate
into way-higher gold-mining earnings. Anticipating how high
requires some estimates.
A
big majority of GDX’s 25 largest component stocks provide guidance
for expected production and all-in sustaining costs. But that is
almost always for entire calendar years. In their
recent Q4’23
results that I analyzed in depth in mid-March, these major gold
miners averaged forecasting $1,334 AISCs in 2024. Subtract that
from Q1’s record average gold prices, and that implies
unit earnings running $738 per ounce!
Those would make for fat profits, the best the major gold stocks
have reported since Q2’21. They would also be the fourth highest
on record, after Q3’20’s $884, Q4’20’s $838, and Q2’21’s $744.
If that played out, the GDX top 25’s unit earnings over the past
four quarters would experience 1.2%, 93.8%, 42.3%, and 27.5% YoY
growth! A projected $738 more than doubles their recent quarterly
ebb of $321 in Q3’22.
But
odds are Q1’s AISCs will come in higher than full-year-2024
guidances. Plenty of gold miners have forecast production
weighted to the back-half of this year. Unit mining costs are
inversely proportional to gold output, as more ounces produced to
spread mining’s big fix costs across lowers AISCs. Some of 2024’s
ramping production is due to new expansions and mines coming online
later this year, but not all.
Overall gold-mining output is considered constant, but is actually
varies between quarters. The World Gold Council publishes the
best-available global gold supply-and-demand data quarterly in its
excellent Gold Demand Trends reports. The new Q1’24 edition is due
soon, but hadn’t yet been released as I penned this essay. That is
super-anticipated to see where demand fueling gold’s breakout surge
came from.
The
WGC tracks worldwide gold mine production every quarter, and it
isn’t steady. Over the last decade, quarter-on-quarter mined gold
output in Q1s, Q2s, Q3s, and Q4s has averaged -8.4%, +3.7%, +6.1%,
and +0.4%. Q1s are the weakest quarters of the year, seeing
big production declines from Q4s! Then that output builds again in
Q2s and Q3s before peaking in Q4s. There are several reasons behind
this trend.
Like
most of the world’s land masses, most gold mines are found in the
northern hemisphere. Winter weather peaking in Q1s adversely
impacts operations, ranging from bitter cold up north to heavy
seasonal rains down south. Both reduce efficiencies of necessary
chemical reactions in heap leaching commonly used to dissolve gold
from ores. Q1s are also when mine managers get new maintenance and
upgrade budgets.
So
they often schedule plant maintenance early in years, further
slowing outputs. Sometimes they take advantage of winter weather
impeding mining operations to expand throughputs. With much of that
done and temperatures warming, gold mines often really hum in Q2s
and Q3s. All of my gold-mine visits have been in summer months, and
it’s always amazing seeing the beehives of activity with ore being
moved.
AISCs inversely mirror production, so they are generally higher
in Q1s before falling in Q2s and Q3s. So the GDX top 25’s
full-year-2024 AISC guidance of $1,334 per ounce is very likely to
be exceeded in Q1. It’s impossible to predict how much, but it
almost certainly won’t exceed 5% more. That would make for $1,400
Q1 AISCs, which would be the second highest ever after Q3’22’s
$1,405. $1,400 is likely worst-case.
That
would definitely erode Q1 unit earnings, pulling them down to $671
per ounce up 16.0% YoY. But even that is substantial growth, and
would still rank as the sixth-best GDX-top-25 profits on record! My
best guess is those Q1 AISCs average around $1,365, which would
yield still-fat $707 unit earnings surging 22.1% YoY. The gold
miners are certain to soon report fantastic profits on
much-higher gold prices.
This
ongoing massive earnings growth is super-bullish because gold stocks
remain deeply undervalued relative to gold. This chart looks at GDX
and its key technicals over the past several years or so. While
gold is blasting to record highs in its remarkable breakout rally,
the gold stocks continue to languish. That is because American
stock investors distracted by the
recent AI stock
bubble haven’t started chasing gold yet.
Despite the gold miners’ phenomenal fundamentals, midweek GDX was
merely drifting near $33. The major gold stocks were trading at
similar levels over three years ago in March 2021, when gold was
only averaging near $1,725. At this span’s highwater mark in
mid-April 2022, GDX was challenging $41 while gold was around
$1,975. So with gold running over $2,300 today, gold stocks should
be a heck of a lot higher.
It’s
not just their implied unit profits that are surging, but hard GAAP
earnings. Plenty of major gold stocks are now trading at
absurdly-cheap low-double-digit and even single-digit
trailing-twelve-month price-to-earnings ratios! Sooner or later
this sector’s unparalleled earnings growth and massive cash flows
generated are going to attract institutional investors including
funds. Their buying will catapult gold stocks far higher.
This
small high-potential contrarian sector has been deeply out of favor
for years, mostly because gold was grinding sideways on balance.
But its recent remarkable breakout surge changes everything. New
record highs soon spawn
momentum-chasing
buying. The higher gold advances into record territory, the
more the financial media covers it and the more bullish that
coverage gets. That attracts in legions of new traders.
After learning about surging gold prices, speculators and investors
flock in to chase its upside. Their buying accelerates that,
fueling powerful virtuous circles. The higher gold rallies, the
more traders rush to buy in, the faster gold surges, and the more
the financial media reports on it. This new-record dynamic is
responsible for some of the biggest gold uplegs ever witnessed, and
was last seen in a pair cresting in 2020.
The
first blasted to 42.7% gains over 18.8 months, while the second
soared 40.0% in just 4.6 months! By those monster record-achieving
standards, today’s gold upleg up 31.2% at best in 6.4 months still
has a long way to run. Hitting 40% gains since early October’s
major bottoming would carry gold way up near $2,550! And there are
strong arguments for even higher with
American stock
investors not yet chasing gold.
Those monster gold uplegs drive huge gold-stock gains, with GDX
soaring 76.7% during that first one peaking in 2020 then
skyrocketing 134.1% in the second! Those averaged 105.4% gains,
more than doubling. Unbelievably at best during today’s gold upleg,
GDX has merely rallied 33.0%. That makes for pathetic 1.1x upside
leverage to gold, far behind the 2x to 3x major gold stocks have
historically achieved.
With
another monster 40% gold upleg probable, overall GDX gains should
extend to 80% to 120%. That would drive GDX way up between $47
to $57, far higher from current levels! And those still
wouldn’t be anywhere near record gold-stock highs. GDX peaked at
$66.63 in early September 2011 when gold was merely trading near
$1,865. Make no mistake, with new record gold highs gold-stock
upside potential is vast.
While American stock investors haven’t figured that out yet, Chinese
ones have. Their buying is likely the primary driving force behind
gold’s remarkable breakout surge. Gold miners listed in China have
seen their stocks relentlessly bid up to dazzling new all-time
record highs. When gold runs, gold stocks are the best way to
amplify its gains due to their inherent profits leverage to their
metal. Frenzied buying is coming.
Chinese stock markets are previewing this. Back in early April, one
of China’s leading gold-stock ETFs actually had to halt trading.
The reason was the premium on that ETF’s share price over its
underlying gold-stock assets had ballooned over 30%! That
won’t happen in GDX or GDXJ due to how they are run, but illustrates
how crazy gold-stock demand can get. Big capital inflows launch
this relatively-small sector.
Circling back to expected gold-mining profits, they aren’t done
soaring. This current Q2’24 is almost a third over, and gold has
already averaged a stunning record $2,336! The GDX top 25’s Q2
AISCs are likely to be closer to their full-year guidances averaging
$1,334, due to the big surge in output between Q1s and Q2s. That
implies mind-boggling sector unit earnings tracking $1,002 per
ounce in this current Q2!
That
would dwarf Q3’20’s previous record of $884, and make for epic 67.6%
YoY unit-earnings growth for these major gold miners. Whether gold
continues rallying from here or rolls over into a correction during
the next couple months, gold-mining profits are going to keep
soaring. That will make gold stocks even more undervalued
relative to their metal and even more attractive to investors, who
will start returning soon.
And
the biggest gains certainly won’t be won in the majors dominating
GDX. The very-large scales they operate at make achieving
consistent material production growth impossible. And their stocks’
large market capitalizations have too much inertia to skyrocket,
requiring big capital inflows to overcome. This sector’s best gains
during gold’s bull will come in smaller fundamentally-superior
mid-tier and
junior miners.
They
are better able to continually grow their outputs by expanding their
handful of existing mines and building new ones. Those smaller
mines also tend to be higher-quality, with lower operating costs
than majors making for more-profitable operations.
Mid-tiers’ and juniors’ much-smaller market caps make their stocks
way easier to bid far higher, requiring much-less buying. These
stocks are going to fly with gold.
Our
newsletter trading books are currently full of handpicked
fundamentally-superior smaller gold miners. While their unrealized
gains during this gold upleg are already running as high as +69.8%
midweek, these trades have the potential to double, triple, or
even more! With American stock investors not yet starting to
chase gold stocks, it isn’t too late to get deployed. The great
majority of their huge gains are still coming.
Successful trading demands always staying informed on markets, to
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The
bottom line is the major gold miners will soon report fantastic Q1
results. Despite higher mining costs likely in the usual Q1
production ebb, record average gold prices will still make for fat
unit profits. Those should really boost accounting earnings,
leaving gold stocks even more undervalued. Big fundamental strength
will increasingly attract institutional investors, with their buying
driving this neglected sector way higher.
And
gold-mining earnings growth is set to accelerate even more
dramatically in this current Q2. Gold’s remarkable breakout surge
to dazzling new heights will fuel soaring mining profits, which are
already on track to achieve big new records. As traders
increasingly learn about gold stocks’ amazingly-bullish fundamental
outlook, they will flock back. Contrarians buying in ahead of most
will really multiply their wealth. |