Gold Miners ETF (GDX)

[DiscoverGold]

Gold Mid-Tiers’ Q1’22 Fundamentals
By: Adam Hamilton | May 20, 2022

The mid-tier and junior gold-miners’ stocks in their sector’s sweet spot for upside potential have been clubbed like baby seals since mid-April. Sucked into the parallel serious stock-market selloff, that’s left these smaller gold stocks deeply out of favor. Yet their fundamentals remain strong as revealed in the just-finished Q1’22 earnings season. That recent brutal mid-tier-and-junior-gold-stock plunge wasn’t righteous.

Gold-stock tiers are defined by their production rates. Small juniors mine less than 300k ounces of gold annually, medium mid-tiers have outputs running from 300k to 1,000k, large majors yield over 1,000k, and huge super-majors operate at vast scales exceeding 2,000k. The mid-tiers offer a unique mix of sizable diversified production, good output-growth potential, and smaller market capitalizations ideal for outsized gains.

Mid-tiers are much-less-risky than juniors, and amplify gold’s uplegs much more than majors. These mid-tiers are nicely tracked by the GDXJ VanEck Junior Gold Miners ETF. Birthed in November 2009, it now commands $3.8b of net assets making it the second-largest sector ETF after its big-brother GDX. While GDXJ is way-superior on multiple fronts, despite its name it is overwhelmingly comprised of mid-tier gold miners.

They are universally-hated now, after GDXJ was eviscerated in a merciless 30.0% plunge in less than a month into mid-May! Speculators and investors alike have forgotten that mid-tier gold stocks were having a good 2022 before that, rallying 21.7% year-to-date by mid-April. They were nowhere near overbought then, and shouldn’t have cratered. But they were sucked into a wider market maelstrom of serious selling.

During that same span the flagship US S&P 500 stock index dropped an ugly 10.5%. The resulting big fear spike, confirmed by its VIX gauge blasting 40.4% higher, infected everything else. The safe-haven exodus from stocks into cash catapulted the US Dollar Index a monster 4.5% higher! That unleashed big leveraged gold-futures selling, hammering gold 7.6% lower which the gold stocks amplified to serious losses.

But that heavy sector selling had nothing to do with fundamentals, it was collateral damage from soaring bearish psychology. Like a match being struck, after flaring brightly extreme sentiment never lasts long. The battered mid-tier and junior gold stocks are destined to recover fast as gold resumes powering higher. Its own fundamental outlook remains super-bullish on raging inflation unleashed by extreme money printing.

Right after 24 quarterly earnings seasons in a row now, I’ve painstakingly analyzed the latest operational and financial results reported by the top-25 GDXJ gold miners. This week they collectively accounted for 62.8% of this ETF’s weighting. With a whopping 100 component stocks, GDXJ’s capital is spread across most of the better mid-tier-and-junior-gold-mining universe! Its larger holdings show how mid-tiers are faring.

This table summarizes the operational and financial highlights from the GDXJ top 25 in Q1’22. These gold miners’ stock symbols aren’t all US listings, and are preceded by their rankings changes within GDXJ over this past year. The shuffling in their ETF weightings reflects shifting market caps, which reveal both outperformers and underperformers since Q1’21. Those symbols are followed by their current GDXJ weightings.

Next comes these gold miners’ Q1’22 production in ounces, along with their year-over-year changes from the comparable Q1’21. Output is the lifeblood of this industry, with investors generally prizing production growth above everything else. After are the costs of wresting that gold from the bowels of the earth in per-ounce terms, both cash costs and all-in sustaining costs. The latter help illuminate miners’ profitability.

That’s followed by a bunch of hard accounting data reported to securities regulators, quarterly revenues, earnings, operating cash flows, and resulting cash treasuries. Blank data fields mean companies hadn’t reported that particular data as of the middle of this week. The annual changes aren’t included if they would be misleading, like comparing negative numbers or data shifting from positive to negative or vice versa.

The elite mid-tier and junior gold miners filling GDXJ’s upper ranks reported good results last quarter. Many suffered weaker production, which was largely the result of the COVID-19-omicron wave forcing lots of mine employees to stay home early-on. But these smaller gold miners still managed to mostly hold the line on costs, which combined with better gold prices fueled very-profitable fundamentally-strong operations.



Like most exchange-traded funds, GDXJ is essentially market-capitalization-weighted. That’s the most-logical way to construct ETFs, reflecting relative capital amounts traders have deployed in component stocks. But shifting market caps continually alter ETF-component weightings and rankings, and there was a lot of churn in GDXJ’s top-25 holdings over this past year. Chief among that was an excellent pruning.

For years one of this “Junior Gold Miners” ETF’s top components had been South-African super-major Gold Fields. Last quarter it produced an enormous 580k ounces of gold! There was never justification to include a gigantic gold miner like that in GDXJ, and I railed against that for years in these quarterly-results analyses. GDXJ’s managers eventually saw the light, booting GFI in Q2’21 leaving it exclusively in GDX...

Read Full Story »»»

DiscoverGold