Amid growing supply constraints and undervalued stock prices, value investors are gravitating towards mining stocks, seeking to capitalize on a market dislocation poised for a readjustment.
Taylor McKenna, CFA analyst at Kopernik Global Investors LLC, shared insights at a Benzinga virtual event on Thursday, highlighting the significant gap between metal commodity prices and the valuation of mining companies.
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Gold Stocks At A Discount Despite Rising Gold Prices
McKenna pointed out the stark disconnection in the market, with gold trading above $2,000 per ounce while gold stocks are priced at a discount of 50 to 80%. This discrepancy presents a unique opportunity for investors, according to McKenna, who is “very happy to take advantage of this currently”.
He noted the decline in capital expenditure among mining companies to 80% of what was spent a decade or more ago, forecasting severe supply constraints for various metals.
“What’s really exciting for us is that valuations are reaching extremes,” McKenna said.
Newmont Corp: A Case Study in Undervaluation
McKenna underscored Newmont Corp.‘s NEM 60% stock price drop from the previous year, despite a 10% rise in gold prices.
Contrary to concerns of value destruction, McKenna praised Newmont’s acquisition of Newcrest Mining last year as ‘a steal’ for the company.
He argued that Newmont’s valuation has actually increased.
“Currently, you can buy gold in the ground at the largest gold producer with the longest mine lives for under $200.00 an ounce. Even if you add lifting cost and then a margin on top of that, it’s still well below the current gold price of $2,000,” McKenna said.
Chart: Newmont Trades At Extreme Discount Compared To Gold Prices
Stronger Balance Sheets, Positive Outlook
McKenna also commended the improved financial health of larger mining firms. He noted their cleaner balance sheets and net cash positions.
Gold miners’ valuations are already at historic lows relative to the price of gold. McKenna sees even more upside potential if precious metal prices climb further, driven by industry-wide supply constraints.
Addressing the question of Wall Street’s apparent oversight of this dislocation, McKenna expressed confidence that “eventually investors will wake up to this.”
List of ETFs Holding Newmont Corp.
| ETF Name | ↓ Weight % |
| iShares, Inc. – iShares MSCI Global Gold Miners ETF RING | 19.05% |
| VanEck ETF Trust – VanEck Gold Miners ETF GDX | 13.20% |
| Sprott Funds Trust – Sprott Gold Miners ETF SGDM | 11.10% |
| WisdomTree Trust – WisdomTree Efficient Gold Plus Gold Miners Strategy Fund GDMN | 8.06% |
| SPDR Index Shares Funds – SPDR S&P North American Natural Resources ETF NANR | 5.88% |
| iShares, Inc. – iShares MSCI Global Silver and Metals Miners Fund SLVP | 4.49% |
| iShares Trust – iShares U.S. Basic Materials ETF IYM | 4.43% |
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