Gold Miners ETF (GDX)

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Gold Mid-Tiers’ Q4’23 Fundamentals
By: Adam Hamilton | March 22, 2024

The mid-tier and junior gold miners in this sector’s sweet spot for upside potential are finishing reporting their latest quarterly results. Those have proven spectacular, with these fundamentally-superior smaller gold producers delivering big on all fronts. The potent combination of growing production, lower mining costs, and near-record gold prices fueled huge windfall profits. So mid-tiers shouldn’t stay undervalued for long.

The leading mid-tier-gold-stock benchmark is the GDXJ VanEck Junior Gold Miners ETF. With $4.3b in net assets mid-week, it remains the second-largest gold-stock ETF after its big brother GDX. That is dominated by far-larger major gold miners, though there is much overlap between these ETFs’ holdings. Still misleadingly named, GDXJ is overwhelmingly a mid-tier gold-stock ETF with little weighting allocated to juniors.

Gold-stock tiers are defined by miners’ annual production rates in ounces of gold. Small juniors have little sub-300k outputs, medium mid-tiers run 300k to 1,000k, large majors yield over 1,000k, and huge super-majors operate at vast scales exceeding 2,000k. Translated into quarterly terms, these thresholds shake out under 75k, 75k to 250k, 250k+, and 500k+. Today only two of GDXJ’s 25 biggest holdings are true juniors!

Their Q4 production is highlighted in blue in the table below. Juniors not only mine less than 75k ounces per quarter, but their gold output generates over half their quarterly revenues. That excludes both primary silver miners producing byproduct gold, and royalty and streaming companies that purchase future gold output for big upfront payments used to finance mine builds. But mid-tiers often make better investments.

These gold miners dominating GDXJ offer a unique mix of sizable diversified production, excellent output-growth potential, and smaller market capitalizations ideal for outsized gains. Mid-tiers are less risky than juniors, while amplifying gold uplegs much more than majors. Our newsletter trading books are now filled with fundamentally-superior mid-tiers and juniors, smaller gold miners which we’ve long specialized in at Zeal.

While the mid-tiers’ fundamentals are stellar as you’ll soon see, GDXJ’s recent performance has been wanting. Ultimately gold stocks are leveraged plays on gold, and its latest upleg was born back in early October. By early December, gold had surged 13.8% to its first new nominal record close in 3.3 years on gold-futures short-covering buying. GDXJ only rallied 27.9% in that early-upleg span, mere 2.0x upside leverage.

After that gold consolidated high before slipping into a mild pullback into mid-February. Gold just gave back 3.9%, yet GDXJ plunged 21.1% as gold stocks fell out of favor again! The extreme euphoria and greed spewing out of the general-stock-market bubble were overshadowing alternative investments. Gold bounced back strong, surging 9.6% over the subsequent few weeks into mid-March. But mid-tiers kept lagging.

GDXJ merely rebounded 18.5%, amplifying gold an even-worse 1.9x. At best in mid-March, gold’s upleg had powered 19.9% higher achieving nine new nominal record closes! Yet GDXJ was only up 19.6%, just pacing gold. Much riskier than their metal, gold stocks need to way outperform to compensate traders for their big additional operational, geological, and geopolitical risks that are heaped on top of gold price trends.

For 31 quarters in a row now, I’ve painstakingly analyzed the latest operational and financial results from GDXJ’s 25-largest component stocks. Mostly mid-tiers, they now account for 64.7% of this ETF’s total weighting. While digging through quarterlies is a ton of work, understanding smaller gold miners’ latest fundamentals really cuts through the obscuring sentiment fogs shrouding this sector. This research is essential.

This table summarizes the GDXJ top 25’s operational and financial highlights during Q4’23. 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 Q4’22. Those symbols are followed by their recent GDXJ weightings.

Next comes these gold miners’ Q4’23 production in ounces, along with their year-over-year changes from the comparable Q4’22. 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 disclosed 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 mid-tier gold miners’ overall Q4’23 performance again proved spectacular! These sweet-spot-for-upside smaller gold stocks grew their production while slashing mining costs. That along with surging prevailing gold prices fueled massive earnings jumps, both per-ounce and bottom-line. Last quarter was undoubtedly one of the best the mid-tier and junior gold stocks ever reported, which should attract back investors.



Production growth trumps everything else as the primary mission for gold miners. Higher outputs boost operating cash flows which help fund mine expansions, builds, and purchases, fueling virtuous circles of growth. Mining more gold also raises profitability, lowering unit costs by spreading big fixed operational expenses across more ounces. The GDXJ-top-25 gold miners delivered again for the seventh quarter in a row!

Their collective production grew 2.8% YoY to 3,543k ounces last quarter. That trounced the larger super-majors and majors dominating GDX, which I analyzed in another essay last week. In Q4’23 the GDX-top-25 gold miners suffered a big 4.6%-YoY output drop to 8,845k ounces. The World Gold Council reported overall global gold-mining output in Q4 slipped 1.7% YoY to 29,925k. So the mid-tiers are outperforming.

But not as much as their aggregate production implies, as fully 14 of these GDXJ-top-25 stocks reported lower Q4 production. The biggest output growth came from GDXJ’s largest component, Pan American Silver which just grew into a major gold miner over this past year. Its Q4’23 gold production soared up 63.0% YoY, mostly because it acquired Yamana Gold at the end of Q1’23. PAAS’s output shot up 104k ounces.

That exceeded the GDXJ top 25’s total growth of 96k, so without that buyout aggregate production would have shrunk. But it still would’ve been much better than the GDX-top-25 majors. Some of the GDXJ mid-tiers reported great growth, including Centamin’s and Eldorado Gold’s surging 21.8% and 11.4% YoY. A sizable fraction of these elite mid-tiers and juniors have expansions going live this year that will boost output...

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