It's been a disappointing year for the gold miners as many were expecting big returns due to the Fed's easy money policies and rising inflation. Taylor Dart explains why investors should now consider buying high-quality miners like Kinross Gold (NYSE:KGC), Royal Gold (NASDAQ:RGLD), and SSR Mining (NASDAQ:SSRM).It’s been a disappointing 12-month stretch for the Gold Miners Index (GDX (NYSE:GDX)), with the index plummeting more than 30% from its Q3 2020 highs, with miners combating inflationary pressures with little help from the gold (GLD (NYSE:GLD)) price. While this has only led to low to mid-single-digit cost increases for most miners, the combination of no pricing power combined with higher fuel costs and materials costs have put a significant dent in the shares prices of many producers. The good news is that while we have seen a bit of a pinch in margins, all-in sustaining cost margins are still up more than 55% from FY2020 levels, up from ~$450/oz to closer to $700/oz. This means that the average gold producer is still very profitable, and we’re seeing this show up in their free cash flow, with several producers electing to buy back shares, pay dividends but also have room to stockpile cash. In this update, we’ll look at three of the most attractively priced names within the GDX and their ideal buy-points.
(Source: TC2000.com)
Many investors prefer to play the gold price with the GLD or the Gold Miners Index, and while this approach made a ton of sense in 2011 – 2018 when margins were low, and few miners paid dividends or bought back shares, it makes much less sense now. This is because the average producer million-ounce gold producer is paying a dividend yield of more than 2.70%, double that of the S&P-500 (SPY). So, with investors being paid to wait, holding miners looks to be a better strategy, especially because valuations support meaningful upside in the sector. This is because the average producer is trading at a discount to net asset value, which we have not seen since March 2020, and early 2019. For those unfamiliar, the average gold producer gained more than 40% over the next nine months in both instances, and I would not rule out a similar upside over the next year or a trade back to $40.00 on the GDX. Let’s take a look at three names that are trading at deep discounts to their peers, which include Kinross Gold (KGC), Royal Gold (RGLD), and SSR Mining (SSRM).