2 Gold Stocks Likely To Outperform

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"

Two Standouts in the Gold Sector

While the cyclical bear market in the S&P-500 (SPY) has created buying opportunities, the real value can be found in the Gold Miners Index (GDX).

This is because the sector has endured a 22-month bear market, sending many names down 60% from their highs.

Although several names offer compelling buying opportunities, two stand out as offering a rare mix of growth and value. These are i-80 Gold (IAUX) and Sandstorm Gold Royalties (SAND).

Investing in the precious metals sector can be treacherous and intimidating, with several names to choose from, multiple pitfalls, and lengthy technical reports describing each mine.

For this reason, the sector is often avoided by generalist investors. The proposition becomes even less interesting if we mix in a declining gold price.

However, there is one key trait in gold miners that allows investors to worry less about the gold price: production growth. The key is selecting names with growth and low-risk business models with a high probability of successful execution, which is easier said than done.

Sandstorm Gold Royalties (SAND)

Sandstorm Gold Royalties is a precious metal royalty/streaming company, giving it a lower-risk business model within the sector. This is because it provides upfront capital to operators/developers to construct/expand mines, and in exchange, it receives a portion of metal production over the mine life.

The result is that it’s highly diversified (dozens of revenue streams and jurisdictions), and it’s protected from inflation as it doesn’t have to pay for sustaining capital or get hit by rising operating costs.

In addition, it enjoys very high margins (80% plus gross margins), with it simply receiving gold deliveries of metals at a low fee ($10/oz to $500/oz gold) vs. $700/oz to $1,300/oz costs for operators.

The other major benefit of this model is that any discoveries on properties where it holds royalties are gravy, given that the mine can continue to deliver ounces for decades even if the mine life was estimated at only several years initially.

A couple of examples are an investment in Goldstrike which turned $2.0 million into $1.0 billion paid in royalties, and an investment in Cortez which translated to a 500% plus return for Royal Gold. This is why royalty/streaming companies commonly trade at a premium to their net asset value. Continue reading "Two Standouts in the Gold Sector"

Gold Stocks Trading At Deep Discounts

It’s been a mixed Q2 Earnings Season for the Gold Miners Index (GDX), with most producers posting solid operational results but revising cost guidance higher to reflect inflationary pressures. These pressures are related to fuel (diesel) and labor inflation, partially related to a tight labor market in prolific mining regions.

However, a few companies have bucked the trend, and others are in a position to claw back any margin declines experienced this year. These miners are the ones to own, and due to depressed sentiment in the sector, they’re trading at large discounts to their net asset value, with two being prime takeover targets.

Alamos Gold (AGI)

Alamos Gold (AGI) is a mid-cap gold producer operating in Mexico and Ontario, Canada, that has three mines and a development project in Manitoba.

The company was one of the few miners not to raise its cost guidance this year due to diesel hedges and operating high-grade underground mines. Notably, it’s also tracking nicely against production guidance, explaining the stock’s sharp rally following its Q2 results.

However, the real news for AGI was the release of its Island Gold Phase 3+ Study, which has outlined an operation capable of producing over 270,000 ounces per year at all-in sustaining costs below $600/oz.

This would make its Island Gold Mine (130,000 ounces per annum at ~$900/oz currently) one of the lowest-cost mines globally and a top-5 in Canada from a profitability standpoint. I believe this is a game-changer, but due to the poor sentiment sector-wide, the stock has not enjoyed the premium it should for this news.

Assuming the expansion is successful and the company can receive permits for its Lynn Lake Mine in Manitoba, Alamos has a path to become a 750,000-ounce producer at sub $850/oz costs by FY2027 a major upgrade from 460,000 ounces at $1,200/oz currently.

This should command a large premium to net asset value ($11.00 per share), yet it trades at a discount at a share price of $7.40, making this a rare opportunity to pick the stock up on sale. Continue reading "Gold Stocks Trading At Deep Discounts"

Gold Stocks Acting As They Should

The macro has moved through a time of moderately rising inflationary concerns when economies were cycling up, many commodities were firm and risk was ‘on’. Contrary to the views of inflation-oriented gold bugs, that was not the time to buy gold stocks.

As I have belabored again and again, the right time is when the inflation view is on the outs, gold is rising vs. stock markets, the economy is in question, risks of a steepening yield curve take center stage (the flattening is so mature now that steepening will be a clear and present risk moving forward) and by extension of all of those conditions, confidence declines.


gold stock sector

In short, the improving sector and macro fundamentals I’ve been writing about for a few months now continue to slam home as the cyclical world pivots counter-cyclical. And what do you know? Gold stocks are reacting as they should. Well, it’s about time, guys!

The technicals had already made some constructive moves as noted in an NFTRH subscriber update on December 4th. The update concluded as follows… Continue reading "Gold Stocks Acting As They Should"

Gold Stocks Couldn't Beat Gold

One year ago I shared with you the similar dynamics of the top gold stocks ranked by ROE. There were five tickers: ABX (Barrick Gold), SBGL (Sibanye Gold), IAG (IAMGOLD), GSS (Golden Star) and HMY (Harmony Gold Mining). I want to update on their price dynamics to show you which of your bets played out after one year.

Before we get down to the results, below is the distribution of votes for each stock for you to recall those bets.

gold stocks

For the second time in a row, the majority of you bet on Barrick Gold (ABX) despite that this company was among the top losers a year ago. Another interesting fact is that the Golden Star (GSS) was the least favorite, although it had shown the best result last time. This is what we call mysterious investors’ sentiment.

Chart 1. Gold Stocks Vs. Gold: Unmatched

gold stocks
Chart courtesy of tradingview.com
Continue reading "Gold Stocks Couldn't Beat Gold"