The major gold miners’ stocks are drifting sideways with gold, their early-year momentum sapped by the recent stock-market euphoria. But they are more important than ever for prudently diversifying portfolios, a rare sector that surges when stock markets weaken. Their just-reported Q1’19 results reveal how gold miners are faring as a sector, and their current fundamentals are way better than bearish psychology implies.

The wild market action in Q4’18 again emphasized why investors shouldn’t overlook gold stocks. Every portfolio needs a 10% allocation in gold and its miners’ stocks. As the flagship S&P 500 broad-market stock index plunged 19.8% largely in that quarter to nearly enter a bear market, the leading gold-stock ETF rallied 11.4% higher in that span. That was a warning shot across the bow that these markets are changing.

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.

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 $9.0b this week were a staggering 46.6x larger than the next-biggest 1x-long major-gold-miners ETF! GDX is effectively this sector’s blue-chip index.

It currently includes 46 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 94.3% of GDX’s total weighting. Last quarter they combined to mine 274.4 metric tons of gold. That was 32.2% of the aggregate world total in Q1’19 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. 20 of the top 34 mainly trade in US stock markets, 6 in Australia, 5 in Canada, 2 in China, and 1 in the United Kingdom. GDX’s geopolitical diversity is excellent for investors, but makes it more difficult to analyze and compare the biggest gold miners’ results. Financial-reporting requirements vary considerably 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 was made available, I split it in half for a Q1 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 is essential to see how they are doing. 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 Q1’19 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 Q1’18 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 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 and individually. While the endless challenge of growing production continues to vex plenty of the world’s larger gold miners, they generally performed much better in Q1’19 than today’s low gold-stock prices reflect. Last quarter was also a big transition one as the recent gold-stock mega-mergers continued to settle out.


Production has always been the lifeblood of the gold-mining industry. Gold miners have no control over prevailing gold prices, their product sells for whatever the markets offer. Thus growing production is the only manageable way to boost revenues, leading to amplified gains in operating cash flows and profits. Higher output generates more capital to invest in expanding existing mines and building or buying new ones.

Gold-stock investors have long prized production growth above everything else, as it is inexorably linked to company growth and thus stock-price-appreciation potential. But for several years now the major gold miners have been struggling to grow production. Large economically-viable gold deposits are getting increasingly harder to find and more expensive to exploit, with the low-hanging fruit long since picked.

Gold miners’ exploration budgets have cratered since gold collapsed in Q2’13, plummeting 22.8%! That was the yellow metal’s worst quarter in an astounding 93 years, which devastated sentiment and scared investors away from this sector. Much less capital to explore shrank the pipeline of new finds to replace relentless depletion at existing mines. That left major gold miners just one viable option to grow their output.

They either have to buy existing mines and/or deposits from other companies, or acquire those outright. That’s unleashed a merger-and-acquisition wave that culminated in recent quarters. In September 2018 gold giant Barrick Gold announced it was merging with Randgold. Not to be outdone, in January 2019 the other gold behemoth Newmont Mining declared it was acquiring Goldcorp in another colossal mega-deal.

I wrote a whole essay analyzing these mega-mergers in mid-February, and believe they are bad for this sector for a variety of reasons. For our purposes today, Q1’19 was the first quarter fully reflecting the new Barrick including Randgold. But Newmont’s acquisition of Goldcorp wasn’t finalized until April 2019, so that isn’t included in NEM’s Q1’19 results. And unfortunately Goldcorp’s weren’t published separately either.

That makes analyzing the GDX top 34’s gold production last quarter more complicated than usual. As far as I can tell, Newmont released nothing on Goldcorp’s Q1 operations. As usual when one company buys out another, the acquired company’s website is quickly effectively deleted. It is replaced with a tiny new website largely devoid of useful information, that redirects to the new combined company’s main website.

So Goldcorp’s Q1 results were apparently cast into a black hole, never to be seen by investors. Across last year’s four quarters, Goldcorp ranked as the 5th-to-7th-largest GDX component. So excluding it from this leading gold-stock ETF skews all kinds of Q1 numbers. This discontinuity will resolve itself over the next couple quarters as Newmont and Goldcorp are fully integrated into the new, wait for it, “Newmont Goldcorp”.

In Q1’19 these top 34 GDX gold miners produced 8.8m ounces of gold, which was down a sharp 6.3% from Q1’18’s levels. But Goldcorp averaged 574k ounces of quarterly production in 2018. If that is added in, Q1’19’s climbs to 9.4m ounces which is only off a slight 0.2% YoY. Stable gold output is a victory for the major gold miners, as there have been plenty of recent quarters where their production has declined.

But depletion is still a huge challenge for them, as they are losing market share to smaller gold miners that aren’t so unwieldy to manage. The World Gold Council publishes the best global gold fundamental supply-and-demand data quarterly. According to its latest Q1’19 Gold Demand Trends report, total world mine production actually climbed 1.1% YoY in Q1. So the larger gold miners continue to underperform.

On a quarter-over-quarter basis since Q4’18, the GDX top 34’s gold production plunged 8.8%! But again that is overstated by Goldcorp’s missing-in-action Q1 output. Add in that 2018 quarterly approximation, and that decline moderates to 2.8% QoQ. The quarter-to-quarter output dynamics among the major gold miners are somewhat surprising. Gold is not produced at a steady pace year-round as logically assumed.

Going back to 2010, the world gold mine production per the WGC has averaged sharp 7.2% QoQ drops from Q4s to Q1s! For many if not most major gold miners, calendar years’ first quarters mark the low ebb in their annual output. The gold miners attribute this Q1 lull to new capital spending that slows production as mine infrastructure is upgraded. That weaker output in Q1s is regained with big jumps in following quarters.

In that same decade-long WGC dataset, Q2s saw world mine production average big 5.4% QoQ surges from Q1s! That sharp acceleration trend continued in Q3s, which averaged additional 5.3% QoQ growth from Q2s. Then that petered out on average in Q4s, which were only 0.5% better than Q3s. So it is normal for gold miners’ production to fall sharply in years’ Q1s before rebounding strongly in Q2s and Q3s.

There’s more to this intra-year seasonality than capital spending though. Mine managers play a big role in how they plan their ore sequencing. Individual gold deposits are not homogenous, but have varying richness throughout their orebodies. Mine managers have to decide which ore to mine in any quarter, which is fed through their fixed-capacity mills for crushing and gold recovery. Ore grade determines output.

The more gold per ton of ore dug and hauled in any quarter, the more gold produced. Mine managers choose to process more lower-grade ores in Q1s, then move to higher-grade ore mixes in Q2s and Q3s. That helps maximize their incentive bonuses. Q3 results are reported in early-to-mid Novembers soon before year-ends. Higher production boosts stock prices heading into that year-end bonus-calculation time!

Realize that Q1 results reported from early-to-mid Mays generally show a year’s weakest gold output. It is surprising to see investors sell gold stocks hard when Q1’s production declines from Q4’s, as this is par for the course in this industry. The bright side is excitement later builds throughout the year as Q2’s and Q3’s production grows fast. The gold miners look better fundamentally later in years than earlier in them!

With year-over-year gold production among the GDX top 34 effectively flat in Q1’19 with Goldcorp’s likely output added back in, odds argued against much of a change in gold-mining costs. They are largely fixed quarter after quarter, with actual mining requiring the same levels of infrastructure, equipment, and employees. These big fixed costs are spread across production, making unit costs inversely proportional to it.

There are two major ways to measure gold-mining costs, classic cash costs per ounce and the superior all-in sustaining costs per ounce. Both are useful metrics. Cash costs are the acid test of gold-miner survivability in lower-gold-price environments, revealing the worst-case gold levels necessary to keep the mines running. All-in sustaining costs show where gold needs to trade to maintain current mining tempos indefinitely.

Cash costs naturally encompass all cash expenses necessary to produce each ounce of gold, including all direct production costs, mine-level administration, smelting, refining, transport, regulatory, royalty, and tax expenses. In Q1’19 these top-34-GDX-component gold miners that reported cash costs averaged $616 per ounce. That actually fell a sharp 7.7% YoY, down on the low side of recent years’ cash-cost range.

Investor sentiment in gold-stock land has been really poor, as recent months’ extreme stock euphoria has really stunted interest in gold. If stock markets seemingly do nothing but rally indefinitely, then why bother prudently diversifying stock-heavy portfolios with counter-moving gold? There’s been increasing chatter lately about the gold-mining industry’s viability, which isn’t unusual when psychology waxes quite bearish.

Those worries are ridiculous with the major gold miners’ cash costs averaging in the low $600s even in Q1’s low-quarterly-output ebb. As long as gold remains well above $616, this neglected sector faces no existential threat. And Q1’s top-34-GDX-average cash costs are even skewed higher by one struggling gold miner, Peru’s Buenaventura. In Q1’19 it suffered a sharp 22.2% YoY plunge in gold production.

That was primarily due to the company stopping extraction operations at one of its key mines in January to rejigger and centralize it. That lower output to spread mining’s big fixed costs across was enough to catapult BVN’s Q1 cash costs 33.1% higher YoY to an extreme $1049 per ounce. Those are expected to mean revert much lower in coming quarters. Ex-BVN the rest of the GDX top 34 averaged merely $600.

Way more important than cash costs are the far-superior all-in sustaining costs. They were introduced by the World Gold Council in June 2013 to give investors a much-better understanding of what it really costs to maintain gold mines as ongoing concerns. AISCs include all direct cash costs, but then add on everything else that is necessary to maintain and replenish operations at current gold-production levels.

These additional expenses include exploration for new gold to mine to replace depleting deposits, mine-development and construction expenses, remediation, and mine reclamation. They also include the corporate-level administration expenses necessary to oversee gold mines. All-in sustaining costs are the most-important gold-mining cost metric by far for investors, revealing gold miners’ true operating profitability.

The GDX-top-34 gold miners reported average AISCs of $893 per ounce in Q1’19, up merely 1.0% YoY. These flat AISCs are right in line with flat production when Goldcorp’s likely output is added back in. The big operational challenges at Buenaventura also rocketed its AISCs an incredible 82.3% higher YoY to an anomalous $1382 per ounce. Excluding BVN, the rest of the GDX top 34 averaged $874 AISCs in Q1.

That’s right in line with the past couple calendar years’ quarterly average of $872. The major gold miners, despite still struggling to grow their production enough to exceed depletion, are still holding the line on all-important costs. Those stable costs regardless of prevailing gold prices are what make the gold stocks so attractive. They have massive upside potential as their profits amplify the higher gold prices still coming.

The gold price averaged $1303 in Q1’19. Subtracting the major gold miners’ average $893 AISCs from that yields strong profits of $410 per ounce. While recent years’ universal stock-market euphoria has capped gold at $1350 resistance, it has still been grinding higher on balance carving higher lows. Gold is getting wound tighter and tighter towards a major upside breakout to new bull highs well above $1350.

Like usual gold investment demand will be rekindled when the stock markets inevitably roll over materially again, propelling gold higher. A mere 7.7% upleg from $1300 would carry gold to $1400, and just 15.4% would hit $1500. Those are modest and easily-achievable gains by past-gold-upleg standards. During essentially the first half of 2016 after major stock-market selloffs, gold blasted 29.9% higher in 6.7 months!

At $1300 and Q1’s $893 average AISCs, the major gold miners are earning $407 per ounce. But at $1400 and $1500 gold, those profits soar to $507 and $607. That’s 24.6% and 49.1% higher on relatively-small 7.7% and 15.4% gold uplegs from here! This inherent profits leverage to gold is why the major gold stocks of GDX tend to amplify gold uplegs by 2x to 3x or so. Investors enjoy large gains as gold rallies.

Despite investors’ serious apathy for this sector, the gold miners’ costs remain well-positioned to fuel big profits growth in a higher-gold-price environment. Investors love rising earnings, which are looking to be scarce in the general stock markets this year. The better gold miners’ stocks are likely to see big capital inflows as gold continues climbing on balance, which will drive them and to a lesser extent GDX much higher.

The GDX top 34’s accounting results weren’t as impressive as their flat production and costs in Q1. The lack of Goldcorp’s operations being accounted for last quarter again distorted normal annual comparisons. So all these Q1’19 numbers are compared to Q1’18’s excluding Goldcorp. Last quarter’s average gold price being 1.9% lower than Q1’18’s average also played a role in weaker year-over-year performance.

The GDX top 34’s total revenues fell 5.2% YoY ex-Goldcorp to $9.2b in Q1’19. That’s reasonable given the slightly-lower production and gold prices. Lower byproduct silver output also contributed, as a half-dozen of these elite major gold miners also produce sizable amounts of silver. Again without Goldcorp, the total silver output among the GDX top 34 fell 8.0% YoY to 27.3m ounces in Q1 weighing on total sales.

Their overall cash flows generated from operations mirrored this weakening trend, down 9.1% YoY to $2.8b last quarter. Still the GDX-top-34 gold miners were producing lots of cash as the big profits gap between their AISCs and prevailing gold prices implied. Only two of these major gold miners suffered significant negative OCFs, and one of those was naturally Buenaventura with all its production struggles.

These elite gold miners remained flush with cash at the end of Q1, reporting $11.1b on their books. That is 11.3% lower YoY without Goldcorp. The gold miners tap into their cash hoards when they are building or buying mines, so declines in overall cash balances suggest more investment in growing future output. Investors fretting about the gold-mining industry today aren’t following their strong operating cash flows.

Last but not least are the GDX top 34’s hard accounting profits under Generally Accepted Accounting Principles. These are the actual quarterly earnings reported to the SEC and other regulators. Overall profits excluding Goldcorp only declined 7.2% YoY to $731m in Q1’19. That’s really impressive in light of the 5.2%-lower revenues. Prior quarters’ big mine-impairment charges on lower gold prices also dried up.

So the major gold miners included in this sector’s leading ETF are doing a lot better than investors are giving them credit for. There’s no fundamental reason for this critical portfolio-diversifying contrarian sector to be shunned. Gold stocks’ only problem is the lack of upside action in gold, which will quickly change once the stock markets decisively roll over again. December 2018 proved these relationships still work.

As the S&P 500 plunged 9.2% that month, investors remembered the timeless wisdom of keeping some gold and gold miners’ stocks in their portfolios. So they started shifting capital back in, driving gold 4.9% higher that month which GDX leveraged to a big 10.5% gain! Gold and its miners’ stocks act like portfolio insurance when stock markets sell off. Everyone really needs a 10% allocation in gold and gold stocks!

That being said, GDX isn’t the best way to do it. This ETF’s potential upside is retarded by the large gold miners struggling to grow their production. Investment capital will seek out the smaller mid-tier and junior gold miners actually able to increase their output. It’s far better to invest in these great individual miners with superior fundamentals. While plenty are included in GDX, their relatively-low weightings dilute their gains.

GDX’s little-brother ETF GDXJ is another option. While advertised as a “Junior Gold Miners ETF”, it is really a mid-tier gold miners ETF. It includes most of the better GDX components, with higher weightings since the largest gold majors are excluded. I wrote an entire essay in mid-January explaining why GDXJ is superior to GDX, and my next essay a week from now will delve into the GDXJ gold miners’ Q1’19 results.

Back in essentially the first half of 2016, GDXJ rocketed 202.5% higher on a 29.9% gold upleg in roughly the same span! While GDX somewhat kept pace then at +151.2%, it is lagging GDXJ more and more as its weightings are more concentrated in stagnant gold super-majors. The recent mega-mergers are going to worsen that investor-hostile trend. Investors should buy better individual gold stocks, or GDXJ, instead of GDX.

One of my core missions at Zeal is relentlessly studying the gold-stock world to uncover the stocks with superior fundamentals and upside potential. The trading books in both our popular weekly and monthly newsletters are currently full of these better gold and silver miners. Mostly added in recent months as gold stocks recovered from deep lows, their prices remain relatively low with big upside potential as gold rallies!

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The bottom line is the major gold miners performed pretty well last quarter. Their production held steady despite lower prevailing gold prices and inexorable depletion. That led to flat costs right in line with prior years’ average levels. That leaves gold-mining earnings positioned to soar higher in future quarters as gold continues slowly grinding higher on balance. Another major stock-market selloff will accelerate that trend.

Stock investors are making a serious mistake ignoring gold and its miners’ stocks. The bearish sentiment plaguing this sector today is irrational given miners’ solid fundamentals. Diversifying is best done before it is necessary, buying low with gold-stock prices so beaten-down. This is the only sector likely to rally fast amplifying gold’s upside when stock markets inevitably swoon again. Don’t overlook the great opportunity here!

Adam Hamilton, CPA

May 21, 2019

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