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Gold Miners’ Q1’23 Looks Good

CPA, Principal & Co-Founder of Zeal LLC
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.”

Thus “As all that reverses, gold will soar launching gold stocks way higher.”  That has indeed come to pass in spades.  As of the mid-week data cutoff for this essay, at best since then gold and GDX have already powered 25.7% and 63.9% higher from their extreme late-September lows!  That makes for 2.5x upside leverage to gold from the major GDX gold stocks.  And both uplegs are likely to grow much bigger still.

Why is outside the scope of this earnings-season-preview essay, but I analyzed gold’s upleg still running last week.  The prior couple essays before that looked at why this gold-stock upleg is immature and gold stocks are still undervalued relative to gold.  So the gold miners’ impressive Q1’23 results will feed into this surging-price environment fueling increasing enthusiasm and bullishness for this contrarian sector.

Price action drives sentiment, which motivates traders to buy and sell.  Strong fundamentals are icing on the cake, fueling growing capital inflows from investors including funds.  Impressive quarterly results give fundamental cover for traders buying to chase gains.  All this converging makes for explosive gold-stock upside potential in coming months, amplified by gold forging into new all-time-record-nominal-high territory.

The great Q1s reported by Alamos Gold and Eldorado Gold are likely the vanguard of strong operational and financial results for this sector as a whole.  Several factors are contributing.  The most-important one is higher prevailing gold prices.  Last quarter gold averaged $1,892 on close, which edged up a slight 0.7% YoY.  But it blasted 9.3% higher sequentially quarter-on-quarter from Q4’22, truly a powerful quarterly surge!

Gold miners’ earnings naturally amplify gold prices, making for much-better profits as gold uplegs grow.  The past half-year’s action offers an excellent real-world example.  In Q4’22, the top 25 GDX gold miners excluding three extreme outliers averaged $1,141 AISCs.  In late September when gold bottomed at that stock-panic-grade $1,623, that made for sector unit profits of $482.  Those weren’t bad despite the gloom and doom.

Fast-forward to mid-April 2023, when gold hit $2,040 on close.  If the major gold miners’ AISCs remained near similar levels, unit earnings nearly doubled to $899 per ounce!  A 25.7% gold upleg drove implied sector unit profits 86.5% higher!  That makes for strong earnings leverage to gold of 3.4x.  Since gold-mining all-in sustaining costs shift far more gradually than gold price trends, higher gold means fatter profits.

Very bullishly this trend is continuing in early Q2’23.  So far this quarter, gold has averaged $2,002 on close which is running 6.9% above Q2’22’s average!  That is also up another 5.8% QoQ sequentially from Q1’23.  So these higher prevailing gold prices alone will continue to fuel big earnings growth for the gold miners.  Stock prices ultimately follow underlying corporate earnings, trading at some reasonable multiple of them.

But it’s not just gold’s secular bull boosting gold-mining profits.  In their guidances for 2023 production and AISCs, the gold miners themselves are generally forecasting growing outputs and lower costs.  Those are usually synonymous, as gold-mining costs are largely fixed during pre-construction mine-planning stages.  That’s when mine engineers determine designed throughputs for plants processing gold-bearing ores.

Once operational, their nameplate capacities don’t change quarter to quarter.  They require similar levels of infrastructure, equipment, and employees to keep running.  The main variable driving quarterly output is the ore grades fed into these plants.  Richer ores yield more ounces to spread mining’s big fixed costs across, lowering unit costs and boosting profitability.  Ore grades vary based on sequencing of deposits.

After every quarter, I read through dozens of gold miners’ reports.  The latest full batch from Q4’22 along with the early Q1’23 ones had a surprisingly-common theme of 2023 production weighted to the back half of this year.  That was mainly due to new mine expansions and mine-builds coming online.  Eldorado Gold just reiterated this last week, declaring “higher production is expected in the second half of the year.”

Alamos Gold’s latest quarterly report had a similar “Grades mined are expected to increase in the second half of the year driving total cash costs lower.”  While cash costs are narrower than all-in sustaining costs, AISCs are also generally expected to drift down as 2023 marches on.  Some miners even segmented their overall 2023 guidances into halves to highlight their expected production growth and resulting lower AISCs.

Higher prevailing gold prices combined with higher production and lower costs are the best of all worlds for earnings growth!  You can’t ask for anything more bullish fundamentally for gold miners, portending way-higher stock prices ahead.  Interestingly this ties in with another fascinating trend in global gold-mine output.  The World Gold Council’s awesome quarterly Gold Demand Trends reports have the raw data for this.

As I pen this essay, the WGC’s latest Q1’23 GDT hasn’t been published yet.  But using the last dozen years of total world gold-mine production from the previous Q4’22 GDT, quarterly swings in gold output are illuminated.  On average in Q1s, Q2s, Q3s, and Q4s, global gold-mine output ran -8.5%, +4.5%, +6.7%, and +0.3% sequentially quarter-on-quarter.  Q1s suffer shrinkage, then growth roars back in Q2s and Q3s.

Q1s are usually weak production-wise for several reasons.  Like most of the world’s land masses, most gold mines are in the northern hemisphere.  For ones farther north, the coldest winter months adversely impact operations and output.  One example is cold temperatures slowing the chemical reactions needed for heap leaching.  So plenty of gold miners often schedule plant maintenance in Q1s, further slowing output.

Q1s are also when mine managers get new budgets to maintain and upgrade mines.  So there’s normally a global lull in gold mining in calendar years’ opening quarters.  I don’t know if Q1’23 will buck that trend.  But if it does, the gold stocks are set up for a very strong year as the big Q2 and Q3 sequential production boosts kick in.  And we look for newsletter stock trades with better forecast output growth than their peers.

Investors generally prize production growth above everything else in this sector, since it gives gold miners the cashflows necessary to expand their operations.  One current fast-growing junior-gold-stock trade we added in early November is already up 134.7% as of mid-week!  Another rapidly-growing mid-tier we bought in late February already has 54.9% unrealized gains.  Fundamentally-superior gold stocks are really thriving.

But sadly most speculators and investors haven’t been paying attention.  They were foolishly ostriching last autumn when gold stocks were battered to phenomenal bargain prices, missing incredible contrarian buying opportunities.  Now they are distracted by raging inflation and still-levitating US stock markets with dangerous bubble valuations.  So this powerful gold-stock upleg continues to still be widely overlooked.

To multiply your wealth in the markets, you have to always stay informed whether they are exciting or not.  That’s where great financial newsletters like ours shine, sharing ongoing expert analysis shaped by hard experience from long decades of study and trading.  You can glean the profitable fruits of all that with just an hour of reading a week or month!  Buying low then selling high requires always staying abreast of markets.

We’ve actively traded gold-stock uplegs and corrections for decades, entering and exiting specific gold stocks multiple times as opportunities arise.  I discussed the early Q1’23 results from Alamos Gold and Eldorado Gold in this essay.  Before our current open trades, we’ve realized 17 and 32 past newsletter trades respectively in these two gold stocks.  Opportunities missed by not paying attention are lost forever.

Successful trading demands always staying informed on markets, to understand opportunities as they happen.  We can help!  For decades we’ve published popular weekly and monthly newsletters focused on contrarian speculation and investment.  They draw on my vast experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks.

Our holistic integrated contrarian approach has proven very successful, and you can reap the benefits for only $12 an issue.  We extensively research gold and silver miners to find cheap fundamentally-superior mid-tiers and juniors with outsized upside potential.  Sign up for free e-mail notifications when we publish new content.  Even better, subscribe today to our acclaimed newsletters and start growing smarter and richer!

The bottom line is gold miners’ underway Q1’23 earnings season is looking good.  Companies reporting early are generally showing strong operational and financial results.  That includes growing output and correspondingly-lower costs, greatly boosting profitability.  These improving fundamentals are likely to act as buying catalysts, providing cover for investors to chase the big gains in this mounting gold-stock upleg.

The gold miners are also generally forecasting improving production and lower all-in sustaining costs in the second half of this year, as expansions and mine-builds go live.  Couple that with higher prevailing gold prices as its own upleg marches higher, and gold stocks are set for exceptional profits in 2023.  As stock prices ultimately follow earnings, that portends lots more gold-stock upside likely in coming months.


Adam Hamilton, CPA, is a principal of Zeal LLC, which he co-founded in early 2000 as a pro-free market, pro-capitalism, and pro-laissez faire contrarian investing and speculating Information Age financial-services company. Hamilton is a lifelong contrarian student of the markets who lives for studying and trading them.

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