Epic Re-rating Underway for Gold Stocks?

Gold Miner Profits are Surging. Can the market continue ignoring this sector?

The chart above was recently tweeted out by BrandonBeylo @marketplunger1. He claimed that this is the most important chart right now for gold mining investors because it shows that the mining shares are extremely undervalued relative to dramatically higher gold prices and he notes that ounces in the ground have never been cheaper. But even more important is the fact that profits and free cash flows are starting to rise dramatically higher thanks to higher operating margins because the price of gold has risen far more than the increase in cost of getting gold out of the ground and into bars and coins.

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While we have just started seeing some of our stronger junior producers and explorers catching a bid, as usually happens, the major companies like Newmont Corporation are the first to respond to higher prices and lead to good times for smaller companies in the sector.

Indeed, Newmont is making money hand over fist! As you can see from its 2023 and 2024 quarterly numbers shown above, he price received per ounce of gold sales during the first six months of this year is up 13.4%, to $2,216. By comparison, its all-in sustaining cost rose just 3.8%, to $1,500 from $1,444 for all of 2023. So NEM earned $1.27 during the first six months of 2024 compared to $2.57 for all of 2023. And with the price of gold now over $2,600, we should expect the second half of the year to be even stronger! And talk about cash flow! During the first six months of 2024, the company generated $520 million of free cash flow compared to $88 million for all of 2023.

Meanwhile, the company is raising upward to $2 billion in cash by selling non-core assets. I suspect Newmont is gearing up to acquire some very large new gold discoveries, perhaps including projects owned by some of the companies covered in this letter—like Snowline, New Found Gold, Seabridge Gold,Perpetua Resources, and others. As that happens and as the equity markets begin to undergo the impact of an impending recession, there is bound to be a major bull market as mine profit margins continue to get even stronger! It looks like the long wait for a bull market in the gold miners may finally be upon us. Let’s enjoy this sector for a change!

I have been writing J Taylor’s Gold, Energy & Tech Stocks since October 15, 1981. There has never been a time since then that junior gold miners have been more depressed nor has there ever been a time when the case for a near term doubling or tripling of the price of gold has been stronger. Nor can I think of a more advantageous time for investors to learn of some of the most promising emerging gold (and silver) exploration and mining companies that are likely to be merger and acquisition targets.

I’m here to help!

Best wishes,

Jay Taylor

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