Gold Miners ETF (GDX)

[DiscoverGold]

Gold Miners’ Q1’23 Looks Good
By: Adam Hamilton | May 5, 2023

The gold miners are in the thick of reporting their full Q1’23 operational and financial results. Those are mostly looking good so far, making for an impressive earnings season. Higher gold production is lowering unit costs, driving up operating cashflows and profits. Those operating gains are being further amplified by higher prevailing gold prices. These big fundamental improvements are catalyzing gold-stock buying.

As a professional speculator and financial-newsletter guy for a quarter-century now, earnings seasons are my favorite times in the markets. Four times a year following each calendar quarter, companies report comprehensive operational and financial results. These quarterly reports filed with securities regulators illuminate how gold miners are actually faring fundamentally, dispelling the obscuring fogs of sentiment.

While this latest Q1’23 earnings season is well underway, it isn’t over yet. US-listed companies have 40 days after quarter-ends to file their 10-Q quarterly reports, which is May 10th. The data cutoff for this essay is one week before that. But Canada is the epicenter of the gold-stock universe, and companies listed there have 45-day deadlines. So the full extent of gold stocks’ Q1 results won’t be known until mid-May.

After every quarterly earnings season, I dig into the latest results reported by the 25 largest component companies in both leading gold-stock exchange-traded funds. These are the GDX VanEck Gold Miners ETF and the GDXJ VanEck Junior Gold Miners ETF. The former is dominated by large major miners, while smaller mid-tiers and juniors comprise the latter. I’ll write Q1’23-results essays for both in coming weeks.

But occasionally when quarterly results are looking particularly strong, a preview is in order. That’s the case today. We’ve long published popular weekly and monthly subscription newsletters, which each have their own trading books of up to 20 and 10 stocks respectively. As our active positions report quarterlies, I analyze them in our newsletters. The early results from our open trades in this past week have been impressive.

One of them is growing mid-tier gold miner Alamos Gold, which runs several gold mines in Canada and Mexico. AGI reported its Q1 last Wednesday April 26th, producing 128.4k ounces of gold which soared 29.8% year-over-year! More output to spread the big fixed costs of mining across slashed Q1’s all-in sustaining costs by 13.5% YoY to $1,176. Naturally operating cash flows and profits exploded on that.

Alamos Gold’s OCFs last quarter more than doubled skyrocketing 102.8% YoY to $94.3m, while its bottom-line accounting earnings swung from -$8.5m in Q1’22 to +$48.4m last quarter! Along with fantastic results, AGI reaffirmed its 2023 guidance near midpoints of 500k ounces of gold mined and $1,150 AISCs. We added this trade last July, and its unrealized gains have now grown to a hefty 84.3% as of mid-week.

Eldorado Gold is another open trade of similar vintage, which our weekly-newsletter subscribers now have a massive 102.1% unrealized gain in! Eldorado’s full Q1 results were released last Thursday April 27th. This mid-tier gold miner with several mines in Turkey and Greece produced 112.5k ounces in Q1, which surged 20.7% YoY. That also pushed AISCs 12.0% lower YoY to $1,184, really boosting profitability.

EGO’s hard earnings skyrocketed from -$385.0m in Q1’22 to +$20.2m last quarter! That dire comparable number resulted from a $345.4m impairment writedown of a non-core project in Romania. But even excluding unusual items, Eldorado still suffered a $19.0m adjusted loss. So its fortunes are really improving. While Alamos and Eldorado reported Q1’23 earlier than many of their peers, they ought to prove representative.

Strong operational and financial results should catch investors’ interest, catalyzing big buying in individual gold stocks. That will add to the excitement of the mounting uplegs in gold stocks and the metal they are mining. This chart looks at GDX’s technicals over the past couple years or so. This sector has blasted up dramatically in the past half-year, and a strong Q1’23 earnings season should accelerate these big gains.



In mid-2022, the major gold stocks plummeted 46.5% over 5.3 months to a brutal 2.5-year low! That was an extraordinary anomaly fueled by the most-extreme tightening cycle in the Federal Reserve’s history. A series of monster rate hikes launched the US dollar stratospheric, unleashing massive and withering gold-futures selling. That crushed gold 20.9% lower in that same span, the gold stocks were collateral damage.

The major gold stocks of GDX usually leverage material gold trends by 2x to 3x, so that 2.2x during mid-2022’s plunge was on the low side. But it was still miserable, fueling overwhelmingly-bearish sentiment as gold stocks collapsed to literal stock-panic levels. One trading day before gold stocks bottomed with GDX hitting $21.87, I published an essay explaining why that false gold-stock panic couldn’t and wouldn’t last.

I concluded then “Today’s extreme lows are just as anomalous and unsustainable, based on a false premise that recent months’ big gold selloff was fundamentally-righteous. But that simply isn’t true.” I showed then while despair reigned why all that gold-futures and investment selling “has mostly been spent, with speculators’ gold-futures positioning and investors’ gold-ETF holdings at major multi-year lows.”

* * *

Read Full Story »»»

DiscoverGold