Not All Gold Miners Are Created Equal

Not All Gold Miners Are Created Equal

Dear Reader,

Last week I showed you how gold exchange traded funds (ETFs) have performed compared to the Aussie dollar gold price.

However, what may surprise you is just how much bigger the potential gains can be with the guys that are digging for it themselves.

And the gains you might make from gold stocks can differ wildly.

But not all gold miners are created equal.

Let me show you what I mean….

Exclusive interview from The Daily Reckoning Australia: ‘The New Case for Gold: An interview with bestselling author and Wall Street insider, Jim Rickards’. Click here to learn more.

Gold mining giants

Let’s kick off with how the gold mining giants in Australia are doing.

Aussie dollar gold price versus major Aussie gold miners
2017–2020


Port Phillip Publishing

Source: Trading View

[Click to open in a new window]

The blue line is the Aussie dollar price of gold.

As you can see, both Newcrest Mining Ltd [ASX:NCM] (orange line) and AngloGold Ashanti Ltd [ASX:AGG] (yellow line) have closely tracked the Aussie dollar price of gold.

Evolution Mining Ltd [ASX:EVN] (purple line) and Northern Star Resources Ltd [ASX:NST] (aqua line) on the other hand, have exceeded the performance of gold.

Why such a difference?

In the case of Northern Star and Evolution mining, they are low-cost gold producers that spending money on exploration.

In other words, not only are both companies earning high margins on the gold they’re selling…they’re also in the process of hunting for more gold to create bigger reserves.

Whereas Newcrest and AngloGold Ashanti are doing what the market expects of the them. Without a takeover bid — or a significant jump in gold deposits — neither company is likely to exceed gains made in the Aussie dollar gold price.

Evolution Mining, however, has the reputation of being one of Australia’s lowest-cost gold producers. The company’s all-in sustaining costs (AISC) sit at $924 per ounce. Meaning, Evolution is making well over $1,000 per ounce in profit for every ounce sold.

That’s why investors are flocking into Evolution and Northern Star. One miner is trying to get bigger and the other is highly profitable.

The mid-tier miners

So, that’s the big boys of the market…what about the little guys?

That is, the companies with a market cap between $300 million and $1 billion.

Some do better than others.

Aussie dollar gold price versus small- to mid-tier Aussie gold miners


Port Phillip Publishing

Source: Trading View

[Click to open in a new window]

Take Ramelius Resources Ltd [ASX:RMS] (green line) and Westgold Resources Ltd [ASX:WGX] (yellow line), and Gold Road Resources Ltd [ASX:GOR] (pink line). All three are up about significantly on the Aussie dollar gold price.

Whereas Resolute Mining Ltd [ASX:RSG] (black line) and Aurelia Metals Ltd [ASX:AMI] (green line) are well under the Aussie dollar gold price.

Again, what’s the difference between the two? Simply put, in this section of the market, it comes down to cost and exploration.

Ramelius, Gold Road, and Westgold Resources are exploring and growing the size of their deposits…whereas the other two aren’t.

What the big gold miners and the mid-tier ones have in common is that cash costs count…as well as expanding your resources.

Remember, an ounce of gold out of the ground, is an ounce of gold out of the ground.

Ensuring companies have growing deposits is important right now…

The little guys…

Right at the bottom of the food chain are the explorers.

The tiny little gold stocks where you might blow your money up.

Are these the sorts of companies you want to put your money in?

Well, maybe.

Some investors have a large appetite for risk. They invest for the thrill of the ride…

Some investors sink money into tiny gold stocks simply for the ‘I found it first’ bragging rights.

Although, let me be clear: This pocket of the market isn’t for everyone. When it comes to microcap stocks — companies under $100 million — there’s every chance you could lose whatever money you invest in them.

Let me show you what I mean…

Aussie dollar gold price versus microcap gold miners
12 months


Port Phillip Publishing

Source: Trading View

[Click to open in a new window]

Here, we have two companies (purple and green line) that have underperformed when compared with the rising Aussie dollar gold price. And one company that has significantly beaten the Aussie dollar gold price rise.

How?

Well, when it comes to microcap stocks, they simply need to find gold to see their share price rally. They don’t even need to dig it out of the ground to excite investors.

The promise of a few nuggets is enough to get a rally going.

When investing in gold mining stocks, remember two crucial things:

Firstly, what is their all-in sustaining cost (AISC)? In other words, how cheaply can they get the stuff out of the ground and into a doré bar?

Secondly, will this company get any bigger through exploration or mergers?

Because the size, and the ability to pour gold cheaply, is what matters when investing in gold companies.

And if you’re still stuck for ideas on how to invest in gold miners, join me over here.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia