Get Exposure To Gold With These 2 Leaders

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"

Which Is The Better Gold Mining Stock?

While the general market (SPY) has suffered two violent legs down in its cyclical bear market, the Gold Miners Index (GDX) has suffered three legs down and has seen a much more violent bear market.

This has made the sector fertile ground for new investment ideas relative to other sectors. Still, with mining being a complex business and the gold price being quite volatile, the key to outperformance when dabbling in the sector is to own the highest-quality names.

In this update, we’ll look at two of the largest gold miners globally and determine which is the most attractive name from an investment standpoint - Agnico Eagle Mines (AEM) or Newmont Corporation (NEM).

Scale & Business Model

Newmont and Agnico Eagle Mines (“Agnico Eagle”) share very similar business models, given that they are two of the world’s largest gold producers that receive over 90% of their revenue from gold with limited contributions from other metals.

In Newmont’s case, it is the world’s largest gold producer, with 15 operating mines in Africa, North America, South America, and Australia, and annual production of 6.0 million ounces of gold (+ 1.3 million additional gold-equivalent ounces).

Meanwhile, Agnico Eagle has 13 mines across Canada, Finland, Australia, and Mexico and expects to produce 3.4 million ounces of gold this year.

Based on Newmont having slightly more mines (15 vs. 13), double the production profile, and having a massive development pipeline with over ten projects, it certainly wins from a scale standpoint. This slightly edges out Agnico Eagle’s smaller production profile and less robust development pipeline, though Agnico Eagle still has one of the best development pipelines among its peers.

It is also worth noting that while Agnico Eagle has a smaller production profile and slightly less diversification, its jurisdictional profile is superior, with 95% of future production coming from top-rated mining jurisdictions.

That said, Newmont wins by a hair in this category for investors looking for a global producer with diversity. Continue reading "Which Is The Better Gold Mining Stock?"

Not All Gold Miners Are Created Equal

It’s been a challenging two years for investors in the gold space, with the metals making no progress since Q3 2020 and the Gold Miners Index (GDX) suffering a 52% decline from its highs.

This violent bear market can be attributed to significant margin compression for most gold producers, with them being hit by inflationary pressures (fuel, steel, cyanide, labor) and the impact of a lower gold price on sales.

The result? Margins are down over 25% on average from Q3 2020 peak levels.

GDX Chart


On the surface, this might not seem like a very attractive investment thesis given that gold producers are price-takers, gold continues to trend lower, and they’re already seeing margin compression at $1,660/oz.

However, the 52% correction in the GDX has left sector-wide valuations at their lowest levels since 2018, when all-in-sustaining cost margins were at $200/oz, nowhere near the $500/oz margins currently.

Hence, I believe this negativity is more than priced into the sector, especially if gold can find a floor near $1,600/oz, which looks likely given that we have extreme pessimism.

That said, not all miners are created equal, so it’s essential to focus on quality and those names bucking the margin trend. In this update, we’ll look at two names trading at deep discounts to net asset value that have outstanding business models: Continue reading "Not All Gold Miners Are Created Equal"

Buying Opportunity For These Two Gold Miners

While the S&P-500 (SPY) has taken a beating over the past month, leaving the index 18% from its highs, the damage inflicted has been tame relative to the shellacking we’ve seen in the Gold Miners Index (GDX).

Not only has the GDX’s decline been double that of the S&P-500, but the most recent drop is one of the worst in a decade in terms of velocity. This is because the GDX was down 44% in just 95 trading days last Friday, translating to an annualized decline of 79%.

Daily Sentiment Index Data

(Source: Daily Sentiment Index Data, Author’s Chart)

This decline, coupled with muted 10-year returns since the peak of the last bull market cycle (2011), and lifeless 2-year returns since the August 2020 peak, has led to despair in the sector, with many investors not even interested in looking at their portfolios if they hold precious metals stocks.

I believe this has bred conditions for a violent rally to the upside, especially with sentiment for gold (GLD) sitting at its lowest levels in 18 months, as most investors have also given up on the metal.

In this update, we’ll look at two high-quality miners that have been thrown out with the proverbial bathwater:

Agnico Eagle Mines (AEM)

Agnico Eagle Mines (AEM) is the world’s 3rd largest gold producer, on track to produce ~3.3 million ounces of gold in 2022 from more than ten mines globally. Continue reading "Buying Opportunity For These Two Gold Miners"

3 Gold Miners Trading At Dirt-Cheap Valuations

It's been a volatile start to the year for the major market averages, but one sector that's managed to hold up well among the carnage is the Gold Miners Index (GDX). In fact, the index is up 10% year-to-date on the back of higher gold prices. While some investors might fear that they've already missed the move and it's too late to chase, it's important to note that gold has begun to outperform the S&P 500 (SPY) after a multi-year downtrend, which typically suggests we're in the early innings of the move for the GDX. In addition, while a few names are outside of low-risk buy zones, several are dirt-cheap, even after the sharp rally in Q1. Let's take a closer look below:



When it comes to getting exposure to gold, the Gold Miners Index is typically the vehicle of choice for investors. However, the issue with the GDX is that it's made up of more than 50 names, with many having weaker balance sheets, a poor track record operationally, and razor-thin margins. Unfortunately, the latter has been exacerbated by inflationary pressures. Therefore, by owning the index, one is diluting their returns with the laggards. For this reason, I prefer playing the sector by owning the highest-quality names when they go on sale. Continue reading "3 Gold Miners Trading At Dirt-Cheap Valuations"