With gold prices rocketing higher this year, miners and the relevant exchange traded funds are benefiting in significant fashion.
Take the case of the VanEck Gold Miners ETF (GDX), which is the largest ETF in this category. GDX is higher by about 17% since the start of 2023. Experienced investors know that gold miners have a tendency to overshoot spot gold prices both upside and downside, and GDX is doing that this year as the largest bullion-backed ETF is higher by “just” 8.49%.
Even with its impressive start to 2023, GDX is home to some stocks that may be undervalued at the moment, according to some analysts. That group includes Newmont Mining (NEM) and Barrick Gold (GOLD). Those are GDX’s top two components and combine for 18.33% of the ETF’s roster.
“Newmont is the world’s largest gold miner, producing around 6 million attributable ounces of gold in 2022 and accounting for about 5% of total 2022 mined production. Newmont’s all-in sustaining cost of around $1,200 per ounce in 2022 places the company toward the upper end of the second quartile of the gold AISC curve,” wrote Morningstar analyst Jon Mills.
Barrick, which is the number two gold miner in the world and GDX’s second-largest holding, like rival Newmont, has the potential to boost production in the years ahead. In fact, the two miners are partners on what could be a compelling project.
“We forecast Barrick to increase attributable gold production to around 4.6 million ounces in 2027, driven by increased production at its NGM joint venture with Newmont and its 60%-owned Pueblo Viejo mine in the Dominican Republic. Its share of the NGM joint venture, Pueblo Viejo, and Loulo-Gounkoto account for around two thirds of Barrick’s midcycle production in 2027,” added Mills.
While fairly valued at this juncture, Agnico Eagle Mines (AEM) — GDX’s fourth-largest holding at an allocation of 7.42% — could be another contributor to longer term upside for GDX. Previous acquisitions and improved mining processes could help Agnico Eagle boost output to capitalize on elevated bullion prices.
“We forecast Agnico Eagle’s gold production to be about 3.6 million ounces in 2027. This is driven by the purchase of the remaining 50% of its Canadian Malartic mine in 2023 and increased production at its Macassa, Meadowbank, and Detour Lake mines, partially offset by lower production at its Fosterville mine in Australia. Detour Lake, Canadian Malartic, Meadowbank, Meliadine, and LaRonde account for more than 70% of Agnico Eagle’s midcycle production in 2027,” concluded Mills.
For more news, information, and analysis, visit the Beyond Basic Beta Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.