Tag: Gold Miners Index (GDX)

2 Gold Stocks Likely To Outperform

Posted on by Taylor Dart

While the Nasdaq 100 (QQQ) has continued its outperformance on the back of a strong start to the Q1 Earnings Season for Big Tech, the real outperformer has been the Gold Miners Index (GDX).

Not only is the index outperforming the major market averages with a 17% return but it’s also outperforming the price of gold, a healthy sign that suggests a potential change in character after years of underperformance.

The recent strength can be attributed to the sharp rise in the gold price towards the psychological $2,000/oz level, resulting in significant margin recovery for gold producers after a tough year plagued with supply chain headwinds and inflationary pressures.

The good news regarding the recent rally in the Gold Miners Index is that momentum is to the upside and sharp pullbacks are likely to find buying support.

The bad news? With the index up over 50% from its Q3 2022 lows, some of the easy money has been made and a few miners are actually looking fully valued.

Fortunately, there are exceptions, and in this update we’ll look at two names that look reasonably valued and are likely to outperform given their relative value compared to peers.

Marathon Gold (MGDPF)

Marathon Gold (MGDPF) is a development-stage gold company based out of Newfoundland, Canada, with the company currently busy constructing its Valentine Gold Project.

The project is home to nearly 3.0 million ounces of gold reserves and the company plans to operate an open-pit mine consisting of three pits (Berry, Valentine, Leprechaun) with average annual production of 195,000 ounces of gold (first 12 years) at industry-leading all-in sustaining costs of $1,007/oz.

Based on the current schedule, Marathon is aiming to start producing gold by year-end 2024, and the project should boast ~48% margins and generate $120 million per annum in free cash flow at a $1,950/oz gold price. Continue reading "2 Gold Stocks Likely To Outperform" →

Gold Developers At A Discount

Posted on by Taylor Dart

It’s been an exciting year for the Gold Miners Index (GDX) with the index up 12% year-to-date and significantly outperforming the S&P-500 (SPY) for a second consecutive year.

This strong performance can be attributed to the recent strength in the gold price, with the metal launching 10% higher over the past month to hang out near psychological resistance at $2,000/oz.

The recent strength is a big deal for the average producer, which up until January suffered from considerable margin compression with a flat gold price since 2020 yet inflationary pressures across the board.

Unfortunately, for investors hanging out in the gold developer space, the returns have been dismal. Not only have the developers massively lagged the producers and many are scraping along the lows of their multi-year ranges, but they’re under-performing this year despite already lagging by 2000+ basis points last year as well.

This is obviously quite disappointing for investors and in some cases it may be leading to some irrational or forced selling as some investors are tired of not participating in the gold price move and choose to dump their shares.

In this week’s update, we’ll look at two names that continue to trade at massive discounts to fair value that offer a way to get leverage to gold without chasing names already up substantially year-to-date.

i-80 Gold (IAUX)

i-80 Gold (IAUX) is a $840 million market cap gold developer that has a resource base of ~15.0 million ounces of gold in the state of Nevada.

This is an enviable position to be in given that Nevada is one of the top-ranked jurisdictions globally for mining with an abundance of resources, access to a considerable workforce, and favorable permitting historically.

The company differentiates itself from its peer group for several reasons, with the main one being that it has the #1 growth profile sector-wide, with a plan to grow its production profile from ~30,000 ounces in FY2023 to ~250,000 ounces by H2 2026, with the potential to grow to 400,000 to 450,000 ounces long-term. Continue reading "Gold Developers At A Discount" →

2 Gold Miners With Long-Term Potential

Posted on by Taylor Dart

While the major market averages have taken a beating over the last week, gold (GLD) has been one of the few asset classes to stage a sharp rally, with the metal up 2.5% for the week and over 5% since Thursday’s close.

The outperformance can be partially attributed to the belief that the Federal Reserve may have to rethink its rate-hike plans because of the fragility of the Financial Sector (XLF) with two banks already failing and several other regional banks down over 50% from their highs in a one-week span.

The sharp move higher in gold has fueled a major rally in the Gold Miners Index (GDX) which has soared 11% off its lows with the gold producers providing leverage to the metal, especially costs for the group rose materially last year.

In fact, the $110/oz move in gold has led to a temporary ~20% increase in margins for the producers, partially explaining the powerful performance of the group.

However, a couple of names were left in the dust during this rally, providing the opportunity to add exposure to miners without paying up for names that have already headed into overbought territory.

In this update, we’ll look at two names that have lagged their peers, and why they look like long-term outperformers vs. the index.

I-80 Gold (IAUX)

I-80 Gold (IAUX) was one of the best-performing gold developers in 2022, putting together a 15% return vs. 20-30% declines for many of its gold developer peers.

Unfortunately, the stock has since given up considerable ground to start 2023, down 26% for the year which has placed it near the bottom of the pack among its peers.

The disappointing performance for this junior producer with a ~$700 million market cap (assumes 350 million fully diluted shares) is partially attributed to a ~$65 million financing earlier in the year that led to an increase in its fully diluted share count and the announcement of a bought deal secondary offering by its largest shareholder because of a funding gap as it builds a massive mine in Canada, Greenstone. Continue reading "2 Gold Miners With Long-Term Potential" →

2 Small-Cap Names With World Class Deposits

Posted on by Taylor Dart

While the Gold Miners Index (GDX) started the year sharply in positive territory and raced ahead of the S&P-500 (SPY) despite its rebound to start 2023, the index has retreated all the way into negative territory as of mid-February, giving up considerable gains.

This has led to considerable underperformance vs. the S&P-500 (SPY), and this isn’t overly surprising given that sentiment was becoming overheated short-term in the miners heading into late January.

However, with the index down more than 15% from its highs, it’s time to start building watchlists for potential buying opportunities.

In this update, we’ll look at two small-cap names with world-class deposits aiming to become 250,000 ounce per annum producers post-2025.

Osisko Mining (OBNNF)

Osisko Mining (OBNNF) is a ~$1.0 billion gold developer based on an estimated ~465 million fully diluted shares, and it’s well known for being the proud owner of one of the highest-grade gold projects globally in Northern Quebec, Canada.

This project, known as Windfall, hosts more than 7.0 million ounces of gold at an average grade of 12.0+ grams per tonne gold, and would be one of North America’s highest-grade mines if it were in production today.

Once in production (2026 estimate), the mine is expected to produce upwards of 270,000 ounces of gold per annum at sub $725/oz all-in-sustaining costs, translating to ~61% margins at an $1,875/oz gold price assumption.

Windfall

(Source: Company Filings, Author’s Chart)
Continue reading "2 Small-Cap Names With World Class Deposits" →

2 Gold Stocks To Add To Your Watchlist

Posted on by Taylor Dart

2023 has been a great year for investors thus far, with several asset classes enjoying double-digit year-to-date percentage gains, including the Nasdaq 100 Index (QQQ).

While it may be lagging short-term after a strong November and December, the strongest performance has come from the Gold Miners Index (GDX), which outperformed the Nasdaq 100 by more than 3500 basis points in 2022, and is up 46% off its Q3 2022 lows.

Following this strong rally in the GDX and a surge in optimism among investors, some consolidation or a deeper pullback would not be surprising.

However, it’s worth building a watchlist of undervalued now to prepare for sharp pullbacks, assuming these stocks retreat into a low-risk buy zone.

In this update, we’ll look at two gold names still trading at deep discounts to fair value and highlight their low-risk buy zones:

Argonaut Gold (ARNGF)

Argonaut Gold (ARNGF) is a gold producer with a market cap of $430 million and was a name I highlighted in November as one to keep a very close eye on, and I stated the following:

To summarize, this pullback in the stock has provided a fire sale, and I don’t recall the last time I saw sentiment this bad for a producer in years.

Since that update, the stock has soared by more than 60% and is one of the top-performing gold producers by a wide margin.

This is partially attributed to the strong recovery in the gold price that has placed a relentless bid on gold miners but also due to several positive developments.

The major one worth discussing is the appointment of a new Chief Executive Officer, Richard Young, who is well known for transforming Teranga Gold from a junior producer into a $2.0 billion miner before its eventual takeover in late 2020. Continue reading "2 Gold Stocks To Add To Your Watchlist" →