Investors are turning their attention to mining stocks amidst a backdrop of diminishing supply and underpriced stocks, positioning themselves to leverage a market anomaly on the cusp of a major correction.
Taylor McKenna, CFA analyst at Kopernik Global Investors LLC, presented his insights during a Benzinga virtual event, shedding light on the substantial disparity between metal commodity prices and the valuation of mining companies.
Watch The Full Benzinga Virtual Event – Mining Unearthed: Navigating the Ore of Innovation!
Gold Stocks At A Discount Despite Rising Gold Prices
McKenna highlighted the glaring disparity in the market, observing gold trading above $2,000 per ounce while gold stocks are trading at a bargain of 50 to 80%. He stressed that this incongruity presents an unmissable opportunity for investors, expressing his enthusiasm in “taking advantage of this currently”.
He noted the 80% reduction in capital expenditure among mining companies compared to a decade or more ago, predicting severe supply limitations for various metals.
“What’s really exciting for us is that valuations are reaching extremes,” McKenna proclaimed.
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 lauded 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 praised the enhanced financial position of major mining firms, noting their improved balance sheets and net cash positions.
Gold miners’ valuations are already at historic lows relative to the price of gold. McKenna anticipates even more upside potential if precious metal prices ascend further, driven by industry-wide supply constraints.
Addressing the apparent oversight of this disparity by Wall Street, 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% |
Now Read: 2008 ‘Big Short’ Oracle Burry Bets Big On Chinese Giants, Backs Google, Amazon’s AI Wave
Image: Pixabay
