The gold miners’ stocks have corrected hard in recent weeks, hammered by a gold pullback driven by soaring Fed-rate-hike odds. Like any considerable selloff, this has spawned serious bearish sentiment. But the gold miners’ underlying operating fundamentals remain quite strong, proving the recent selling was purely psychological. This sector’s just reported fourth-quarter results are impressive, very bullish.
Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Required by securities regulators, these quarterly results are exceedingly important for investors and speculators.They dispel all the sentimental distortions surrounding prevailing stock price levels, revealing the underlying hard fundamental realities. They serve to re-anchor perceptions.
After spending decades intensely studying and actively trading this contrarian sector, there is no gold-stock data I look forward to more than their quarterly reports. They offer a true and clear snapshot of what’s really going on, shattering all the misconceptions bred by the ever-shifting winds of sentiment. If you have capital deployed in this sector but don’t watch the quarterlies, you’re shooting yourself in the foot.
Normally quarterlies are due 45 calendar days after quarter-ends, in the form of 10-Qs required by the SEC for American companies. But after the final quarter of fiscal years, which are calendar years for most gold miners, that deadline extends out up to 90 days depending on company size. The 10-K annual reports required once a year are bigger, more complex, and require fully-audited numbers unlike 10-Qs.
So it takes companies more time to prepare full-year financials and then get them audited by CPAs right in the heart of their busy season. As a gold-stock trader this additional Q4 delay is irritating since the data is getting stale by Q1’s end. But as a CPA and former Big Six auditor of mining companies, I have some understanding of just how much work goes into an SEC-mandated 10-K annual report. It is enormous!
This extended Q4-reporting window naturally delays the analysis of Q4 results.While I can start digging into the first three-quarters’ results 5 or 6 weeks after those interim quarter ends, I have to wait longer for the fiscal year quarter-ends. Thankfully the great majority of gold miners have reported by 8 or 9 weeks, so we don’t have to wait until early Q2 to analyze Q4 results.The elite gold miners’ Q4’16 was very interesting.
The definitive list of major gold-mining stocks to analyze comes from the world’s most-popular gold-stock investment vehicle, the GDX VanEck Vectors Gold Miners ETF. Its composition and performance are similar to the benchmark HUI gold-stock index. GDX utterly dominates this sector, with no meaningful competition. This week GDX’s net assets are 53.6x larger than the next-biggest 1x-long major-gold-miners ETF!
Being included in GDX is the gold standard for gold miners, as it requires deep analysis and vetting by elite analysts. And due to ETF investing eclipsing individual stock investing, major-ETF inclusion is one of the most important considerations for picking great gold stocks. As the vast pools of fund capital flow into leading ETFs, these ETFs in turn, buy shares in their underlying companies bidding their prices higher.
This week GDX included a whopping 51 component “gold miners”! That term is used somewhat loosely, as this ETF also includes major silver miners, silver streamers, and gold royalty companies. Still, all the world’s great gold miners are GDX components. For weeks I’ve been digging into the 10-Ks of the top 34 GDX component companies, an arbitrary number chosen because it fits neatly into the tables below.
Collectively these top 34 stocks account for 90.8% of GDX’s total weighting, a commanding sample by any standard. While the large majority of these Q4’16 results have been released, a few are still coming later in March. I didn’t want to delay this important analysis for them alone. GDX also contains foreign miners from Australia, South Africa, and the UK, which report in half-year increments instead of quarterly.
I waded through all available Q4’16 results released as of this Wednesday and fed a bunch of data into a spreadsheet, some of which made it into these tables. If a field is blank, that means a company didn’t report that data for Q4. If a company’s entire line is blank, that gold miner hasn’t released Q4 results yet. But with 31 of these top 34 GDX components already releasing at least some Q4 data, there’s plenty to analyze.
The gold miners’ Q4’16 results collectively offer an amazing fundamental snapshot of this now-battered contrarian sector. They clearly reveal whether there is any fundamental justification at all for the recent sharp sell-off. In less than 3 weeks since mid-February, that HUI gold-stock index has plunged 16.6% on a mere 2.5% gold drop! That’s wildly excessive and purely sentimental, as the hard fundamental data proves.
