As Gold Soars, Boring Miners Become Hot Growth Stocks

August 7, 2020

The idea that a rising gold price is good for gold miners is intuitively easy to grasp. But to understand just how good, you have to see the numbers.

Consider the second-quarter reports of mid-tier gold miners Pretium Resources  and Great Panther Mining. 

Beginning with Pretium, ounces of gold sold went up slightly compared to last year’s second quarter and the average price the company received for each ounce of metal went up somewhat more, by 32%. Then the magic of operating leverage kicked in. Revenue rose by 47%, operating earnings more than doubled and net earnings more than tripled. Free cash flow – the ultimate point of the whole exercise – rose by 105%.

The improvement was even more dramatic for Great Panther, since in last year’s second quarter it was unprofitable. A 24% increase in ounces sold combined with a 32% increase in the average selling price to increase operating earnings up by 722% and pull net earnings from a $5.7 million loss to an $8.5 million gain. Operating cash flow soared from a loss of $5 million to a gain of $19 million.

In other words, a $400 increase in the price of gold converted a cash-hemorrhaging loser into a high-flying growth company.

This is the kind of big-percentage-gain profile that traders love, so it’s not a surprise that both companies’ share prices are at 12-month highs. Pretium is actually up 20% on the day of this writing.

And the story gets even better. The current gold price is $300 above the Q2 average, so if the metal just sits there for the next twelve months, these two miners – along with most of their peers – will report an unbroken string of jaw-dropping comparisons for another year.

The likely result: Gold and silver mining stocks will jump off the screens of anyone tracking earnings and/or price momentum. And since momentum-chasing capital tends to dwarf the trickle that normally flows into this obscure sector, the action ought to be fun for anyone who’s already invested here.

The little bugger was something special:

Little Bear was born in Palm Springs, California. He lived in New York City, the countryside of New Jersey, South Beach Miami, Paris, Brittany (France), Santa Fe, San Francisco and Dallas.

He loved to travel, making the scene in Madrid, Amsterdam, all over France, and Brussels; on boat trips on the North Sea and the canals of Brugges (Belgium); and by logging in several cross country trips across the United States.

Little Bear was an action dog, who loved the open street Cafes and the freedoms of the open spaces. While only 18 pounds, he was the Leader of the Pack. I can still visualize him roaming the New Jersey estate of Jacqueline Kennedy Onassis, followed by a herd of much larger dogs.

Little Bear was a smart as they come. Once, when moving from the countryside, Little Bear was studying the movers. He then kept running to the woods back and forth for hours. One of the movers came to get me, totally astounded. Little Bear had dug up all his bones and toys buried in the woods and put them into a pile next to the moving truck to make sure his things were moved also.

Everyone thought Little Bear acted human. Years ago, a Shaman from Peru was visiting and saw Little Bear. He had his translator tell us, "this is not a dog, he may look like a dog, but he is not." People used to call Little Bear a little person in a dog suit.

Little Bear was full of life and energy. Every day for Little Bear was new, exciting, and full of possibility. He was entertaining, tenacious and demanding -- always figuring out a way to get exactly what he wanted and never taking no for an answer.

Little Bear was the perfect companion in every way; a joy and inspiration to so many. We shall miss him very, very much.

This Table is dedicated to his memory.

The volume of all the gold ever mined can occupy a cube 63 feet on each side.

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