Tag: Gold Miners Index (GDX)

Get Exposure To Gold With These 2 Leaders

Posted on by Taylor Dart

While 2022 was a year to forget for the major market averages, the Gold Miners Index (GDX) managed to claw its way back from significant underperformance to finish the year down just 10%, outperforming the S&P 500 (SPY) by 1000 basis points.

Fortunately for investors in the gold space, we’ve seen follow-through to this outperformance to start the new year, with the GDX up 13% year-to-date and back into positive territory on a 1-year trailing basis.

However, while the index may be up sharply off its lows and gold miners are outperforming most stocks, this doesn’t mean that any miner can be bought on dips, and a few have become expensive and increasingly risky now that they’re up more than 50% off their Q3 2022 lows.

In this update, we’ll look at two names that continue to fire on all cylinders and are much safer ways to buy any upcoming pullbacks in the space, given their operational excellence, attractive dividend yields, and superior diversification vs. their peer group.

Let’s take a closer look below:

Agnico Eagle Mines (AEM)

Agnico Eagle Mines (AEM) is the world’s third-largest gold producer and has been one of the busiest companies in the sector from an M&A standpoint.

In Q1 2022, the company closed its merger with the 9th largest gold producer globally, Kirkland Lake Gold, and is now in the process of acquiring Yamana Gold’s Canadian assets in a two-way acquisition with Pan American Silver (PAAS).

The result of these two acquisitions is that the company will grow into a ~3.9 million-ounce producer by 2024 (assuming the Yamana deal closes), placing it just behind Barrick Gold (GOLD) for the #2 spot among the world’s largest gold miners.

The result of this M&A activity is that Agnico Eagle now has ten mines in the safest mining jurisdictions globally (up from seven previously) and will gain the other 50% ownership of one of its largest gold mines in Quebec if the Yamana deal closes. Continue reading "Get Exposure To Gold With These 2 Leaders" →

Gold Miners Index Starting The Year Strong

Posted on by Taylor Dart

2022 was a year to forget for most sectors and certainly the major market averages, with the S&P 500 (SPY) declining 19% for the year and the Nasdaq Composite suffering an even more disappointing 33% loss.

While most investors certainly didn’t have the Gold Miners Index (GDX) in their cards to be an outperformer in 2022 after it found itself down 30% for the year in October with one quarter to go, the sector managed to recover and has started off the new year strong as well.

The strength in GDX can be attributed to the rally in gold prices ($1,650/oz → $1,850/oz) but also sentiment being the worst in years as of Q3, with many names trading at their cheapest valuations since 2015.

This gave the sector the fuel to significantly outperform gold if we saw any positive change in sentiment, and this is exactly what we’ve seen with the gold price back above key support at $1,800/oz.

While this rebound in the GDX is certainly positive from a momentum standpoint, it has made things a little more difficult from a stock-picking standpoint.

This is because many miners have already made 40-50% moves off their lows, and it can be dangerous to chase the lower-quality miners or sector laggards with them hovering well above key support levels.

In this update, we’ll look at two of the better buy-the-dip candidates sector-wide and highlight why these two names have the potential to outperform in 2023, making them attractive names to keep near the top of one’s watchlist if we see further weakness.

I-80 Gold (IAUX)

I-80 Gold (IAUX) is a $730MM company in the gold sector with multiple projects in the state of Nevada, including its Ruby Hill, Granite Creek, and McCoy-Cove projects. The company also has a processing facility with over $1.0BB in sunk costs in northern Nevada.

The company plans to employ a Hub & Spoke model and feed material from its three mines to its central “hub” or processing facility at Lone Tree. Continue reading "Gold Miners Index Starting The Year Strong" →

Gold Miners On The Sale Rack

Posted on by Taylor Dart

It’s been a rough year for the major market averages, with the major indexes down roughly 20% in their worst year since 2008.

This poor performance is not surprising after a decade-long bull market that pushed valuations to historic extremes combined with an ultra-hawkish Federal Reserve that has aggressively hiked rates into a recessionary environment.

At the same time that higher rates have dented earnings and resulted in layoffs due to increased interest expense, the outlook for forward earnings is less clear, with consumer spending pulling back and reduced sales leverage for most corporations.

However, one sector stands out and has been trending higher over the past two months: the gold mining sector. In fact, the Gold Miners Index (GDX) has clawed back from a 30% year-to-date loss to just a 13% year-to-date loss, and many gold miners are trading in positive territory year-to-date.

Given that they’ve suffered through a much larger bear market than the Nasdaq (COMPQ) with a ~55% decline, these names are not only undervalued, but they’re long-term oversold, and the sector could have meaningful upside as we head into a strong seasonal period for the GDX.

In this update, we’ll look at two of the more undervalued names in the sector:

Osisko Gold Royalties (OR)

Osisko Gold Royalties (OR) is a $2.23 billion company in the precious metals royalty/streaming space.

This means that It finances developers, producers, and explorers in the commodity sector with a gold/silver focus, providing them capital upfront to build or expand their assets.

In exchange, Osisko Gold Royalties receives either a royalty or stream on the asset over its mine life, with the latter giving it a right to buy a percentage of metal produced at a fixed cost that is well below spot prices.

The result is that royalty/streaming companies have their tentacles in several projects, have their revenue streams spread across several countries, and are inflation-resistant. Hence, they are superior businesses from a margin and risk standpoint vs. most gold producers.

So, what’s so special about Osisko? Continue reading "Gold Miners On The Sale Rack" →

2 Gold Miners With Large Safety Margins

Posted on by Taylor Dart

It’s been a rollercoaster ride of a year for the Gold Miners Index (GDX), with the ETF starting the year up more than 15% and massively outperforming the major market averages, only to suffer a 48% decline over the next five months.

Since then, the GDX has returned to outperforming, and some of the best names, like i-80 Gold (IAUX), are now up more than 50% from their lows.

This extreme volatility is why it can be difficult to trade the Gold Miners Index successfully. The reason is that one must be ultra-patient when establishing new positions to avoid large drawdowns during the down cycle, but being too complacent at the lows can be costly as the index can turn on a dime when it does bottom.

Fortunately, while several of the best names are already off to the races and out of low-risk buy zones, a couple of stocks are still in the proverbial stable and trading at attractive valuations. In this update, we’ll look at two names that offer large safety margins.

Sandstorm Gold (SAND)

Sandstorm Gold (SAND) is a $ 1.6 billion precious metals royalty/streaming company.

It finances developers and producers in the gold and silver space, giving them capital upfront to build or expand their assets. In exchange, Sandstorm receives either a royalty on the asset over its mine life or a stream on the asset, meaning that Sandstorm has a right to buy a percentage of metal produced at a fixed cost well below the current spot price of gold/silver.

Since royalty/streaming companies typically have royalties/streams on over 20 assets, they are much more diversified than producers with 5-10 mines.

They also have much higher margins, given that they do not have to pay for labor, chemicals, fuel, explosives, and transportation but simply sit back and collect their metal deliveries from these assets.

Finally, the major benefit to owning royalty/streaming companies is that they are not required to spend annually on sustaining capital to maintain an operation, including mine development, drilling, and tailings expansions. In fact, any added resources are very beneficial, given that the royalty/stream is bought and paid for already. Hence, this is a proverbial cherry on top.

Unfortunately, while Sandstorm benefits from this superior model that carries very low risk, the company has had a tough year in 2022. This is because it went out and completed two major acquisitions ($1.1BB value), a smart move, and these deals transformed its portfolio from an average royalty/streamer to one with a phenomenal portfolio. Continue reading "2 Gold Miners With Large Safety Margins" →

Gold Sector Opportunities: OR & ARNGF

Posted on by Taylor Dart

Following a brutal two years for the Gold Miners Index (GDX), the sector has begun to perk up recently, advancing more than 20% off its lows to new 50-day highs.

This recovery can be attributed to the recent rally in gold back above the psychological $1,750/oz level and the fact that many miners had overshot to the downside during this bear market. In fact, many were trading at their most attractive valuations since 2018, when the gold price was hovering below $1,250/oz, and they were much less profitable.

Given the steep decline in the sector, several gold miners are trading at deep discounts to fair value.

In this update, we’ll look at two more attractive opportunities in the gold sector. Not only do these two companies have industry-leading growth profiles, but they have been beaten up sufficiently due to negative sentiment sector-wide that they’re offering considerable margins of safety at current levels.

Osisko Gold Royalties (OR)

Osisko Gold Royalties (OR) is a $2.33BB market cap royalty/streaming company in the gold sector, giving it a very low-risk business model. This is because the company generates revenue and cash flow from royalties and streams that it has purchased from developers and producers in exchange for helping them fund the construction or expansions of their projects/operations.

The result is that Osisko does not have to pay for sustaining capital to maintain these mines, it does not have to pay growth capital to expand these mines, and it is not subject to inflationary pressures if we see rising labor, fuel, explosives, or cyanide costs. Given this attractive business model, the company has reported year-to-date cash margins of 93% and 92% in its most recent quarter.

Osisko Chart

(Source: Company Presentation

Continue reading "Gold Sector Opportunities: OR & ARNGF" →