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Gold Miners’ Q4’23 Fundamentals

CPA, Principal & Co-Founder of Zeal LLC
March 15, 2024

The major gold miners are finishing reporting their latest quarterly results, which proved mixed.  Their collective production generally declined, forcing mining costs modestly higher.  Yet outliers were mostly responsible.  Unit profitability still surged dramatically due to near-record prevailing gold prices, but huge impairment charges gutted accounting earnings.  Traders need to handpick outperformers to leverage gold.

Out of each year’s four quarterly earnings seasons, Q4’s are the most challenging to analyze.  While the annual reports are more comprehensive than quarterlies, some companies report less Q4 detail focusing on full-year results.  And annual reporting deadlines are looser and more spread out than quarterly ones, running 60 days after year-ends in the US and a bewildering 90 days for gold stocks trading in Canada!

So plenty of gold miners in the Great White North wait until late March to publish Q4 results, when Q1 is almost over.  That’s way too late, leaving shareholders with stale fundamental data.  Thus I try to split the difference between US and Canadian reporting, gathering and analyzing all available Q4 reports in mid-March.  While not fully complete then, the resulting picture of major gold stocks’ fundamentals is more timely.

The GDX VanEck Gold Miners ETF remains this sector’s dominant benchmark.  Birthed way back in May 2006, GDX has parlayed its first-mover advantage into an insurmountable lead.  Its $12.9b of net assets mid-week dwarfed the next-largest 1x-long major-gold-miners ETF by nearly 31x!  GDX is undisputedly the trading vehicle of choice in this sector, with the world’s biggest gold miners commanding most of its weighting.

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+.  Those two largest categories account for over 58% of GDX.

Unfortunately gold stocks are languishing well out of favor today because of recent dreadful underperformance relative to the metal they mine.  Gold is enjoying a strong upleg, powering 19.9% higher at best since early October achieving nine new nominal record closes!  Yet in that parallel span GDX only rallied 16.9%, making for terrible 0.9x upside leverage.  Much riskier than their metal, gold stocks need to outperform.

Normally they do, with GDX’s major gold stocks tending to amplify material gold moves by 2x to 3x.  That compensates traders for miners’ big additional operational, geological, and geopolitical risks heaped on top of gold price trends.  This vexing lagging has really damaged confidence in this high-potential sector.  The battered gold stocks need to stage a massive mean-reversion catch-up rally to restore bullish sentiment.

For 31 quarters in a row now, I’ve painstakingly analyzed the latest operational and financial results from GDX’s 25-largest component stocks.  Mostly super-majors, majors, and larger mid-tiers, they dominate this ETF at 87.3% of its total weighting!  While digging through quarterlies is a ton of work, understanding the gold miners’ latest fundamentals really cuts through the obscuring sentiment fogs shrouding this sector.

This table summarizes the operational and financial highlights from the GDX top 25 during Q4’23.  These gold miners’ stock symbols aren’t all US listings, and are preceded by their rankings changes within GDX 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 current GDX 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.

Five weeks ago before this latest earnings season got underway, I wrote a Q4’23 earnings preview essay.  Based on major gold miners’ latest cost guidance and Q4’s lofty prevailing gold prices, it looked like they would be reporting blockbuster results.  While the actuals have been coming in quite good on some key fronts, they aren’t fantastic.  Unfortunately there’s still too much deadweight among major gold miners.

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 boosts profitability, lowering unit costs by spreading big fixed operational expenses across more ounces.  Yet the GDX top 25’s collective output in Q4 fell 4.6% YoY to 8,845k ounces.

That was worse than overall global-gold-mining output according to the World Gold Council, which only slipped 1.7% YoY to 29,925k in Q4.  Fully 14 of these GDX-top-25 miners suffered declining production last quarter.  And disappointingly plenty of them didn’t expound on the reasons, focusing their analyses on full-year-2023 results with Q4 just lumped in.  That’s likely done intentionally to obscure any Q4 challenges.

But the biggest reason the GDX top 25’s collective output shrunk last quarter was another gold-miner mega-merger.  The world’s largest super-major gold miner Newmont bought out Australian super-major Newcrest Mining last year for $16.8b.  That deal closed in early November, so NEM’s Q4 output should include roughly 2/3rds of NCM’s.  A year ago in Q4’22, NEM mined 1,630k ounces while NCM produced 512k.

The latter’s November and December production should’ve run near 340k, adding onto Newmont’s to push it up near 1,970k.  Yet this merged company’s Q4 output merely climbed 6.7% YoY to 1,740k.  Large gold miners have to gobble up smaller ones in order to overcome relentless depletion.  But gold-stock mega-mergers have proven bad for this sector, leading to lower overall production and higher mining costs.

A year ago in Q4’22, Newcrest was the best-looking super-major fundamentally with really-profitable all-in sustaining costs of just $1,082 per ounce.  Newmont’s ran $1,215 back then.  A higher-cost gold miner buying a portfolio of lower-cost gold mines should reduce overall costs, right?  A combined NEM and NCM’s AISCs should be somewhere in the middle.  Yet Newmont’s still soared 22.2% YoY to $1,485 in Q4’23!

Unfortunately these mega-mergers ultimately destroying value for shareholders are nothing new in this sector.  Newmont and Barrick Gold have been doing this for years, assimilating smaller great majors like Star Trek’s Borg.  Those smaller majors including Newcrest and Goldcorp had far-superior fundamentals, growing production with much-lower more-profitable mining costs.  But when acquired those advantages vanish.

Together these acquisition-happy super-majors NEM and GOLD have always dominated GDX, now with a combined 21.0% weighting.  But for long years their fundamentals have usually looked worse than many of their major peers’.  Outside of the four quarters after mega-mergers, their production has been declining while costs have been rising.  Newmont and Barrick have often been deadweight restraining sector gains.

Had Newcrest not been devoured by Newmont, the GDX top 25’s collective production would’ve likely been flat.  And average AISCs would’ve been pulled lower.  In the previous four quarters, NCM’s were averaging just $1,172 compared to NEM’s $1,372!  GDX would leverage gold considerably better if NEM and GOLD weightings shrunk relative to other majors.  Their market caps are too high for their fundamentals.

A year ago Newmont guided 2023 to midpoints of 6,000k ozs of gold mined near $1,200 AISCs.  Yet last year this company only produced 5,550k ozs at way-worse $1,444 AISCs!  A big chunk of this miss was due to a major mine strike in Mexico, which I analyzed in my previous GDX-top-25 Q3’23 results essay.  But the super-majors’ ongoing misfires have really tanked institutional investors’ enthusiasm for this sector.

While GDX is this sector’s benchmark of choice, it is dominated by huge but often-floundering miners that aren’t representative of gold stocks as a whole.  Smaller fundamentally-superior majors, and even-better mid-tiers and juniors, are crushing it on the fundamentals front.  They are consistently growing their outputs largely through organic expansions, and often driving down mining costs fueling increasingly-fat earnings.

Even other super-majors are way outperforming Newmont and Barrick.  Agnico Eagle Mines is the third-largest gold miner, rivaling Barrick with 903k ounces produced last quarter.  Yet that surged 13.0% YoY, partially due to AEM acquiring some of Yamana Gold’s mines when Pan American Silver bought it out.  And AEM’s AISCs slipped 0.3% YoY to $1,227, much more profitable than any of its super-major peers.

The point here is settling for GDX is a suboptimal way to deploy capital in gold stocks, guaranteeing underperformance.  This sector requires researched stock picking, staying with the best fundamentally-superior gold miners while avoiding all the deadweight.  That’s not just NEM and GOLD, but also royalty company Franco-Nevada which has a radically-inflated market cap far in excess of the meager gold it “produces”.

Unit gold-mining costs are generally inversely proportional to gold-production levels.  That’s because gold mines’ total operating costs are largely fixed during pre-construction planning stages, when designed throughputs are determined for plants processing gold-bearing ores.  Their nameplate capacities don’t change quarter to quarter, requiring similar levels of infrastructure, equipment, and employees to keep running.

So the only real variable driving quarterly gold production is the ore grades fed into these plants.  Those vary widely even within individual gold deposits.  Richer ores yield more ounces to spread mining’s big fixed expenses across, lowering unit costs and boosting profitability.  But while fixed costs are the lion’s share of gold mining, there are also sizable variable costs.  That’s where recent years’ raging inflation hit hard.

Cash costs are the classic measure of gold-mining costs, including all cash expenses necessary to mine each ounce of gold.  But they are misleading as a true cost measure, excluding the big capital needed to explore for gold deposits and build mines.  So cash costs are best viewed as survivability acid-test levels for the major gold miners.  They illuminate the minimum gold prices necessary to keep the mines running.

The GDX top 25 reporting cash costs as of mid-week averaged $993 per ounce in Q4, surging 5.1% YoY.  That was just under Q3’22’s record high of $996.  Like usual, outliers dragged that higher.  Perpetually-high-cost Hecla Mining was last quarter’s main culprit, sporting ugly $1,702 cash costs.  Exclude those, and the rest of these major gold miners averaged a better $946.  Cash costs’ relevance has long been fading.

All-in sustaining costs are far superior than cash costs, and were introduced by the World Gold Council in June 2013.  They add on to cash costs everything else that is necessary to maintain and replenish gold-mining operations at current output tempos.  AISCs give a much-better understanding of what it really costs to maintain gold mines as ongoing concerns, and reveal the major gold miners’ true operating profitability.

Again back in early February, I was looking for the GDX top 25’s Q4’23 AISCs to climb a slight 0.6% YoY to $1,275.  That was conservative based on their Q3 year-to-date AISCs and their full-year guidances.  But the actuals came in somewhat worse, with average AISCs climbing 3.9% YoY to $1,317.  Hecla again skewed that high with its embarrassing $1,969 AISCs, which amazingly still improved a sizable 7.6% YoY!

Kicking out Hecla alone, the rest of the GDX top 25 averaged $1,276 AISCs last quarter right in line with my forecast.  And that still includes Newmont’s record-high-for-it $1,485 despite Newcrest’s lower-cost mines.  Had NEM behaved, that would’ve made for a second quarter of annual unit-cost declines.  These elite gold majors aren’t particularly optimistic about 2024 AISCs either, with midpoint guidances averaging $1,334.

For reference, the 31-quarter range of GDX-top-25 AISCs has run from $825 to $1,405, with Q4’23’s $1,317 being 85% up in.  But while lower would be better, the major gold miners were still plenty profitable with last quarter’s near-record average gold prices.  Those surged 14.2% YoY in Q4 to $1,976, just shy of Q2’23’s record high of $1,978.  Despite the major gold miners’ challenges, they are earning fat profits.

Subtracting these quarterly-average GDX-top-25 AISCs from quarterly-average gold prices yields a great proxy for sector unit earnings.  Those ran $659 per ounce in Q4, soaring 42.3% YoY!  That followed Q3’s colossal 93.8%-YoY jump to $622, and ran 60% up into the 31-quarter range from $321 to $884.  Such impressive earnings yield rich profit margins of 33%, high levels most companies would sell their souls for.

Yet the major gold stocks remain unloved despite these strong fundamentals.  Mid-week GDX closed at just $30.29 despite gold running a near-record $2,172.  During its first full month of trading way back in June 2006, GDX averaged $35.80 while gold averaged only $596!  Make no mistake, today’s gold-stock levels are exceedingly undervalued and utterly absurd.  And that gaping disconnect is continuing to mount.

In this current almost-over Q1’24, average gold prices are clocking in at a big new record $2,049 which is up another 8.3% YoY!  Assuming GDX-top-25 average AISCs shake out around their full-year guidances of $1,334, that implies Q1 unit profits surging another 23.6% YoY to an even-fatter $715 per ounce!  As Warren Buffett’s renowned mentor Benjamin Graham famously said, markets are ultimately weighing machines.

While swirling winds of sentiment bully around stock prices over the short term, eventually they will reflect some reasonable multiple of underlying corporate earnings.  Gold stocks remain overdue for a massive mean reversion higher to start normalizing their stock prices with profits.  Valuations should overshoot to the upside too, as those gains fuel increasingly-bullish sentiment that ultimately climaxes in euphoric greed.

The major gold miners’ hard Q4 accounting results under Generally Accepted Accounting Principles sure didn’t look as good as their unit earnings.  The GDX top 25’s total revenues climbed just 4.6% YoY to $17,546m last quarter.  That is worse than 4.6%-lower total production combined with 14.2%-higher average gold prices would suggest.  But thankfully that is due to one major gold miner oddly pushing back Q4 reporting.

British major Endeavour Mining isn’t releasing its Q4 and full-year-2023 results until March 27th.  That is considerably later than last year’s March 9th, and there’s no indication why results are being delayed.  If EDV’s Q4’22 sales are excluded to make these quarters more comparable, the rest of the GDX top 25 saw better 8.6%-YoY revenues growth.  That’s right where it ought to be given production and gold prices.

Circling back to AISCs briefly, EDV’s could drag the GDX top 25’s Q4 ones lower.  Over the last four reported quarters, EDV’s AISCs averaged a great $1,020!  They won’t be that good in Q4’23 because its output plunged 21.1% YoY.  But even at $1,100, that would drag down GDX-top-25 AISCs to $1,305 including Hecla or just $1,266 without!  Endeavour has already guided full-year-2024 AISCs to a $995 midpoint.

The ugliest fly in the ointment of major gold miners’ Q4 results were their colossal accounting losses of $3,484m.  Such dismal negative profits certainly aren’t helping gold stocks’ cause among institutional investors.  But the reason wasn’t operational problems, but huge impairment charges led by Newmont of course.  It wrote down goodwill at three acquired mines totaling $1,881m last quarter, colossal noncash losses!

Newmont also ran though a separate $1,219m reclamation-adjustment charge at another mine due to increased water-management costs.  Franco-Nevada reported its own huge $1,169m impairment charge on the government of Panama shuttering a gigantic copper mine FNV was getting gold streams from, due to political protests.  Barrick Gold and even Agnico Eagle reported their own $289m and $667m impairments.

And that list isn’t exhaustive, with a few more smaller-but-still-considerable impairment charges.  Adding up all those in Q4 totaled a jaw-dropping $5,645m!  Without those, the GDX top 25’s operating profits were closer to $2,161m.  A year ago in the comparable Q4’22, deadweight super-majors NEM and GOLD again reported horrible losses with $1,317m and $830m impairments and another Newmont $620m reclamation!

Q4’22 earnings without those and some smaller non-cash charges were about $2,098m.  So GDX-top-25 bottom-line net profits were closer to 3.0% growth last quarter.  And that is likely lowballed since it doesn’t include Endeavour’s Q4 results yet.  So major gold miners’ hard accounting earnings are nowhere near as bad as Newmont’s and Barrick’s ongoing huge writeoffs for overpaying in past buyouts are making them look.

The GDX top 25’s cashflows generated from operations slipped 0.3% YoY in Q4’23 to $5,307m.  That is right in the middle of their 31-quarter range.  But again EDV hasn’t reported yet, so exclude it from Q4’22 and OCFs grew a better 5.9% YoY.  That’s still lower than it ought to be with gold prices so high, but it isn’t bad.  These elite majors’ total cash treasuries fell 14.7% YoY to $13,653m, which is probably a good sign.

While acquisitions at high premiums often aren’t an optimal use for cash, organically growing production with mine expansions and new mine-builds is fantastic.  A good GDX-top-25 chunk invested substantially in boosting their outputs last year, some of which will start bearing fruit this year.  Plenty of majors still have good growth potential, outside of those merger-happy super-majors.  Traders will reward growing miners.

So the major gold miners’ Q4 results proved mixed, below blockbuster status but generally good.  But the smaller mid-tiers’ and juniors’ should be much better.  Next I’m working on the GDXJ top 25’s results, with an essay analyzing them coming next week.  Smaller gold miners are better able to consistently grow their outputs from lower bases, while better controlling mining costs by targeting lower-cost deposits to tap.

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The bottom line is the major gold miners’ latest Q4 results were mixed.  They generally suffered lower production and higher mining costs, despite another expensive super-major mega-merger.  Yet near-record average gold prices still fueled fat unit earnings that soared dramatically.  But huge impairments led by super-major writedowns hammered accounting profits far into the red, dampening sector enthusiasm.

Nevertheless the major gold stocks remain deeply undervalued relative to the metal they mine.  Their stock prices need to mean revert then overshoot far higher.  That will increasingly happen as gold’s upleg continues powering higher, shifting sector sentiment back to bullish.  Higher prevailing gold prices will also drive improving fundamentals.  That should help attract institutional investors to this high-potential sector.


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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