Among the gold mining sector are the explorers, the producers, and the royalty companies, with each offering different risk profiles. The explorers are the highest-risk with regular capital raises and no guarantees that they’ll build a mine; the producers are medium-risk, with risk dependent on diversification and margins; and the royalty companies are the lowest-risk but offer the least reward. The sweet spot in most cases for returns relative to risk are the producers, given that the royalty companies rarely trade at a discount, even if they do offer safety. In this update, we’ll look at Newmont (NEM), Kirkland Lake Gold (NYSE:), and Orla Mining (ORLA), two producers that are best in breed, and one explorer fully financed to graduate to the producer ranks in December.While the general markets have put up strong year-to-date performances (despite Monday’s sell-off), the precious metals sector has turned in a lifeless performance since January. This has led to the Gold Miners Index (GDX (NYSE:)) lagging the S&P-500 (SPY) by more than 4000 basis points this year and over 5000 basis points since Q3 2020.
The significant underperformance is disheartening for investors, but with despondence comes opportunity. A mix of valuations at multi-year lows and sentiment in the gutter typically breeds strong 6-month forward returns for the GDX, and like any market, the best time to buy is when the majority have given up. The fortunate situation with this correction is that even the highest-quality names are trading at their lowest valuations in years, priced as if gold were below $1,500/oz. Let’s take a look at three of the most attractive names below:
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