Gold Mid-Tier Mining Stocks Fundamentals / Commodities / Gold & Silver Stocks 2024

The mid-tier and juniorgold miners in this sector’s sweet spot for upside potential just finishedreporting truly-spectacular quarterly results. Fueled by dazzling record gold prices and lower mining costs, smallergold miners’ unit earnings skyrocketed to their highest levels ever.  Those incredibly-rich profits have left mid-tierseven more undervalued relative to prevailing gold prices, portending massivecatch-up rallying.

The leadingmid-tier-gold-stock benchmark is the GDXJ VanEck Junior Gold Miners ETF.  With $5.5b in net assets mid-week, it remainsthe second-largest gold-stock ETF after its big brother GDX.  That is dominated by far-larger major goldminers, though there is much overlap between these ETFs’ holdings.  Still misleadingly named, GDXJ isoverwhelmingly a mid-tier gold-stock ETF with juniors having littleweighting.

Gold-stock tiers aredefined 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 hugesuper-majors operate at vast scales exceeding 2,000k.  Translated into quarterly terms, thesethresholds shake out under 75k, 75k to 250k, 250k+, and 500k+.  Today only three of GDXJ’s 25 biggestholdings are true juniors!

Their Q2 outputs arehighlighted in blue in the table below. Juniors not only mine less than 75k ounces per quarter, but their goldoutput generates over half their quarterly revenues.  That excludes streaming and royalty companiesthat purchase future gold output for big upfront payments used to financemine-builds, and primary silver miners producing byproduct gold.  But mid-tiers often make better investmentsthan juniors.

These gold minersdominating GDXJ offer a unique mix of sizable diversified production, excellentoutput-growth potential, and smaller market capitalizations ideal foroutsized gains.  Mid-tiers are lessrisky than juniors, while amplifying gold uplegs more than majors.  So we’ve long specialized in thefundamentally-superior mid-tiers and juniors at Zeal, actively trading thesesmaller gold miners for a quarter-century now.

All 1,510 newsletter stocktrades realized as of Q2’24 averaged +15.6% annualized gains, about double the long-term stock-market average!  Andthat’s heading higher, after early August’s Japanic fear spike stopped out moretrades with big realized gains.  We’vebeen refilling our newsletter trading books since, as gold-stock prices remainway too low relative to their phenomenal fundamentals at lofty prevailing goldlevels.

GDXJ’s latest upleg haspowered 59.2% higher at best over 9.4 months into mid-July.  That’s still modest by historical precedent,and smaller gold miners’ gains really accelerate later in gold uplegs.  The longer and higher gold climbs, the morebullish sentiment that fuels which attracts back traders to chase biggold-stock gains.  Eventually a psychological tipping point is reached and that buying becomes self-feeding.

For 33 quarters in arow now, I’ve painstakingly analyzed the latest operational and financialresults from GDXJ’s 25-largest component stocks.  Mostly mid-tiers, they now account for 65.6%of this ETF’s total weighting.  Whiledigging through quarterlies is a ton of work, understanding smaller goldminers’ latest fundamentals really cuts through the obscuring sentiment fogsshrouding this sector.  This research isessential.

This table summarizesthe GDXJ top 25’s operational and financial highlights during Q2’24.  These gold miners’ stock symbols aren’t allUS listings, and are preceded by their rankings changes within GDXJ over thispast year.  The shuffling in their ETFweightings reflects shifting market caps, which reveal both outperformers andunderperformers since Q2’23.  Thosesymbols are followed by their recent GDXJ weightings.

Next comes these goldminers’ Q2’24 production in ounces, along with their year-over-year changesfrom the comparable Q2’23.  Output is thelifeblood of this industry, with investors generally prizing productiongrowth above everything else.  Afterare the costs of wresting that gold from the bowels of the earth in per-ounceterms, both cash costs and all-in sustaining costs.  The latter help illuminate miners’profitability.

That’s followed by abunch of hard accounting data reported to securities regulators, quarterlyrevenues, earnings, operating cash flows, and resulting cash treasuries.  Blank data fields mean companies hadn’tdisclosed that particular data as of the middle of this week.  The annual changes aren’t included if theywould be misleading, like comparing negative numbers or data shifting frompositive to negative or vice-versa.

Weeks before Q2earnings season even began, I predicted last quarter would prove gold miners’ most-profitableever in a late-June essay on “Gold Miners’ Record Quarter”.  But despite my high expectations, the smallergold miners’ epic Q2 performances exceeded them!  This still-mostly-unloved sector is firing onall cylinders.  Yet the vast majority oftraders remain unaware, leaving massive room to chase this bull.

The GDXJ top 25experienced some major composition changes over the past year, with five smallergold miners rocketing up into these elite ranks.  All are mid-tier and junior producers, whichusually have way-better fundamentals than streamers, royalty companies, andexplorers.  So GDXJ is becoming purer astraders bid better producers’ stocks much higher, increasing this ETF’s upsideleverage to higher gold prices.

These GDXJ-top-25stocks are mostly an expanded subset of the GDX-top-25 majors.  I analyzed their new Q2 results in last week’s essay, whichwere also awesome yet still not as impressive as GDXJ’s.  These GDXJ-top-25 stocks representing 65.6%of this ETF are also collectively weighted at 25.3% in GDX.  GDXJ effectively lops off GDX’s ninelargest holdings, which are mostly deadweight super-majors.

Those gigantic goldminers perpetually struggle to overcome depletion at the vast scales theyoperate.  So their output generallyshrinks, except for four quarters after expensive acquisitions.  Their extensive stables of mines also tend tohave higher costs, making for lower profitability.  And because of far-larger marketcapitalizations, super-majors’ stocks are much harder to bid higher duringmajor gold uplegs.

Production growthtrumps everything else as the primary mission for gold miners.  Higher outputs boost operating cash flowswhich help fund mine expansions, builds, and purchases, fueling virtuouscircles of growth.  Mining more gold alsoboosts profitability, lowering unit costs by spreading big fixed operationalexpenses across more ounces.  The GDXJtop 25 eked out 0.4%-YoY output growth to 2,937k ounces in Q2.

While small, thatextended mid-tiers’ production-growth streak to eight of the last ninequarters!  That’s quite impressive,especially compared to the GDX majors’ overall output sliding lower for sixquarters in a row now.  The bigcomposition changes in GDXJ’s upper ranks didn’t affect that comparisonmuch.  Also in the comparable Q2’23,South Africa’s Harmony Gold and China’s Zhaojin Mining hadn’t reported resultsyet.

And the same twonon-producing explorers were also among the GDXJ top 25 a year ago, Canada’sFilo Corp. and Australia’s De Grey Mining. Both are advancing major gold deposits still years frommine-builds.  DEG’s definitivefeasibility study for its Australian project estimated annual productionaveraging a huge 530k ounces!  And thatgold would be super-profitable to mine with AISCs forecast down near $850 perounce.

The standoutGDXJ-top-25 performer last quarter was IAMGOLD, which achieved fantastic55.1%-YoY production growth!  IAG isramping up a brand-new gold mine projected to yield 347k ounces each year forthe first six of a long 18-year mining life. That will grow this mid-tier’s overall production by about 3/4ths,while seriously boosting corporate earnings with life-of-mine AISCs expected toaverage just $854.

This mine just wentcommercial in early August, after Q2. Yet IAMGOLD’s Q2 results still proved so darned impressive its stock soared16.3% higher the day after they were reported!  That output surge helped drive AISCs 15.4%lower since Q2’23.  Unusually so late ina year, IAG also upped 2024 production guidance at its two other mines by 12.5%at the midpoint, while slashing their projected AISCs by 5.2%.

IAG stock is wildly outperformingeven GDXJ, skyrocketing 160.9% higher at best since early October!  Yet this growing mid-tier remains cheapfundamentally, trading at a 21.6x trailing-twelve-month price-to-earnings ratiowhich is low for gold stocks.  We’vetraded IAG a bunch of times over the years, and first recommended it as along-term investment at $1.52 per share. This good stock closed at $5.27 mid-week.

There are plenty ofother great growth stories among mid-tiers and juniors.  We’ve always prioritized high-potentialsmaller gold miners with new expansions and mine-builds soon going live for ournewsletter trades.  These tend tosurprise most traders, since it takes so much expertise and time to stayabreast of many dozens of gold stocks. Finding such opportunities before the rest of the herd is incrediblyvaluable.

Another thrivingmid-tier we’ve long traded and invested in is Eldorado Gold.  EGO’s production grew a good 11.8% YoY in Q2,and this company reiterated its 2024 midpoint guidance of mining 530k ounces.  That is nice growth from 2023’s 485k, andEldorado has already forecast midpoint outputs of 570k in 2025, 663k in 2026,and 705k in 2027!  EGO stock has soared113.8% in this upleg, yet still trades at a 20.0x P/E.

Great mid-tier andjunior growth plays like these are discussed often in our newsletters, enablingour subscribers paying the bills supporting these essays to buy in earlier andlower.  With such amazing opportunitiesand huge gains among smaller gold miners, why bother with the deadweight-retardedGDX ETF at all?  And even the GDXJ top 25is saddled with plenty of stocks that chronically underperform.

Unit gold-mining costsare generally inversely proportional to gold-production levels.  That’s because gold mines’ total operatingcosts are largely fixed during pre-construction planning stages, when designedthroughputs are determined for plants processing gold-bearing ores.  Their nameplate capacities don’t changequarter to quarter, requiring similar levels of infrastructure, equipment, andemployees to keep running.

So the only realvariable driving quarterly gold production is the ore grades fed into theseplants.  Those vary widely evenwithin individual gold deposits.  Richerores yield more ounces to spread mining’s big fixed expenses across, loweringunit costs and boosting profitability. But while fixed costs are the lion’s share of gold mining, there arealso sizable variable costs.  That’swhere recent years’ raginginflation hit hard.

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

In Q2’24 the GDXJ top25’s average cash costs soared 16.2% YoY to $1,048 per ounce, the highest onrecord!  But that remains far belowprevailing gold prices, so it isn’t concerning. That was also dragged higher by an extreme outlier, Equinox Gold’s $1,747.  This mid-tier faced unusual challenges lastquarter, mainly transitioning one of its eight mines to a new pit deposit after“geotechnical issues” in a depleting one.

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

The GDXJ top 25’saverage AISCs last quarter amazingly fell 5.8% YoY to just $1,242 per ounce!  That proved their fifth consecutive quarterof sizable-to-big annual declines, to their lowest levels since Q1’22!  As I’ll analyze shortly, such low costsnaturally fueled fantastic profits.  Butunfortunately those average AISCs were skewed much lower by another extremeoutlier, this time to the downside which is quite unusual.

Astoundingly Peru’sBuenaventura reported deeply-negative AISCs last quarter of -$578 per ounce!  This sorcery is only possible because of bigsilver, copper, zinc, and lead byproducts. Just 30% of BVN’s Q2 revenues came from gold, but like plenty ofpoly-metallic miners it chooses to report in gold-centric terms.  That’s a shrewd decision, as gold stockscommand higher interest and earnings multiples than base-metals miners.

Buenaventura has a bigrevamped silver-zinc-lead mine ramping back up. While BVN’s gold production fell 10.9% YoY last quarter, silver, zinc,and lead output skyrocketed 175.2%, 82.0%, and 134.8%!  And in Q2 that mine was only operating at 80%capacity, and is expected to ramp to 100% by year-end.  So this company could report super-low goldAISCs due to byproduct credits for years to come, dragging down averages.

As BVN had longlanguished as a super-high-cost gold miner, it is tempting to exclude itsnegative AISCs.  Without them, the restof the GDXJ top 25 averaged a much-higher $1,356 in Q2.  That would have risen a modest 2.8% YoY,still good.  Yet EQX was an opposinghigh-cost outlier at $2,041 last quarter, and without it or BVN the rest ofthese elite mid-tiers were running $1,310 AISCs which slipped 0.7% YoY.

For the great majorityof the last 33 quarters, the GDXJ top 25’s average AISCs were skewed higher bya handful of extreme outliers.  While Ipointed that out in every results essay, I always still used the actualaverages including outliers to calculate implied sector unit profits.  BVN was often one of those super-high-AISCones, and for consistency its super-low negative AISCs now also have to beincluded in this analysis.

Gold powered up to 11new nominal record closes in Q2’24, helping catapult last quarter’s averageprice up 18.2% since Q2’23 to a dazzling record $2,337!  That trounced all previous highwater marksincluding Q1’24’s $2,072 and Q2’23’s $1,978. Subtract last quarter’s GDXJ-top-25 average AISCs of $1,242 from that,and mid-tiers and juniors earned crazy record unit profits of $1,095 perounce!  That is off-the-charts high.

The previous recordunit earnings were $928 way back in Q3’20, when both gold prices and AISCs weremuch lower.  Professional fund investorslove earnings growth, and the GDXJ top 25’s unit profits last quarter soared66.2% YoY.  And that’s just thelatest in a magnificent five-quarter streak unparalleled in all the stockmarkets, where sector unit profits skyrocketed 33.8%, 106.4%, 125.7%, 62.6%,and 66.2% YoY!

No wonder plenty offundamentally-superior smaller gold miners’ stocks have already more than doubledin this upleg, and will likely at least double again before it gives upits ghost.  With broader-stock-marketearnings likely to come under increasing pressure as Americans struggle withraging inflation, gold stocks are a shiny bastion of epic profits growth.  And that remains on track to persist duringcoming quarters.

Over halfway through Q3now, gold has already averaged $2,419 on close this quarter!  That is likely to climb further beforequarter-end too, with gold now trading around $2,500.  Combining with even-higher gold prices areplenty of GDXJ-top-25 miners forecasting better production and lower costs in the back half of 2024 compared to its first half.  I found plenty of examples of that wadingthrough the latest quarterlies.

Another one of ourfast-growing smaller-gold-stock trades and investments is New Gold.  From early October to mid-week, NGD stock hasskyrocketed a phenomenal 202.2% higher! Yes, that’s already a triple in still-immature gold andgold-stock uplegs.  In its Q2 quarterlyNGD declared “production set to increase and all-in sustaining costs set todecrease in the second half of the year”, detailing all the reasons.

GDXJ-top-25 averageAISCs also have a solid chance of forging lower again in Q3’24.  But conservatively let’s assume gold averagesjust $2,400 and AISCs surge back up to $1,300. That still would make for huge record GDXJ-top-25 unit profits of$1,100, which would soar another 65% YoY! As more investors finally realize how fast and huge gold-mining earningsare growing, they will flood back in to chase this sector.

These elite mid-tiers’hard accounting results under Generally Accepted Accounting Principles or othercountries’ equivalents were also quite strong in Q2 despite GDXJ-top-25composition changes.  Overall revenuessurged 13.2% YoY to $7,731m.  But that’snot a record because major Harmony Gold hasn’t reported yet.  Its fiscal years end in Q2s, so Q2 andfull-year results are released later than other quarters’.

Bottom-line accountingprofits soared 48.2% YoY to $832m collectively across the GDXJ top 25.  But as always in this sector, there wereplenty of large unusual items flushed through some income statements in Q2’24and the comparable Q2’23.  The biggest byfar was Equinox Gold recognizing a $470m gain on its previous 60% stake inits big mine-build, when EQX bought the remaining 40% from a joint-venturecompany!

But estimating adjustedearnings last quarter is more muddled than usual.  Several of the GDXJ top 25 reported bigdeferred income taxes, which weren’t separated from normal quarterly incometaxes.  So after spending too much timetrying to understand all the income-statement notes explaining these latestunusual items, they still aren’t clear enough. So I can’t reliably estimate overall Q2’24 adjusted earnings.

These elite mid-tiers’and juniors’ cash flows generated from operations climbed 26.3% YoY to $2,645m,while their cash treasuries surged 10.7% to $7,402m.  Both are on the higher sides of their rangesduring the last 33 quarters.  The GDXJtop 25 are earning and holding plenty of cash to continue financing theirall-important expansions and mine-builds, which are necessary to continuegrowing production on balance.

With gold achieving newrecords, gold miners earning money hand over fist, yet gold stocks remainingseriously undervalued relative to prevailing gold levels, this sector’s setup remainsexceptionally-bullish.  Sooner orlater gold-stock sentiment will reach a tipping point where speculators andinvestors alike rush to chase their mounting gains.  Before gold stocks blast higher again, youneed to get informed and get deployed.

Successful trading demands always staying informed on markets, tounderstand opportunities as they arise. We can help!  For decades we’ve publishedpopular weekly and monthly newsletters focused on contrarian speculation andinvestment.  They draw on my vastexperience, knowledge, wisdom, and ongoing research to explain what’s going onin the markets, why, and how to trade them with specific stocks.

Our holistic integrated contrarian approach has proven verysuccessful, and you can reap the benefits for only $10 an issue.  We extensively research gold and silverminers to find cheap fundamentally-superior mid-tiers and juniors with outsizedupside potential.  Sign up for free e-mail notifications when we publish newcontent.  Even better, subscribe today to our acclaimednewsletters and start growing smarter and richer!

The bottom line is themid-tier and junior gold miners just reported truly-spectacular quarterlyresults.  As they continued collectivelygrowing production, record gold prices fueled its highest quarterly averageever by far.  Such lofty gold levelscombined with lower average mining costs made for massive record unit earnings,forcing long-battered gold-stock valuations relative to gold even lower.  That’s all super-bullish.

And with gold forginghigher still and plenty of gold miners forecasting lower costs in comingquarters, gold-stock profits are heading even higher.  Such rich and fat earnings shouldincreasingly attract fund investors to this sector, driving gold-stock pricesmuch higher.  Traders need to do theirhomework and get deployed before this sector reaches its psychological tippingpoint, when chasing spawns big popular buying.

Adam Hamilton, CPA

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