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Common sense would seem to dictate a high correlation between the price of gold and the price of the gold miners that extract and sell that commodity.  Recent times, one could argue, have demonstrated that correlation with the price of oil and the price of publicly traded oil companies, so why not gold and gold miners?
That reason may account for the reluctance of the general investing public to consider investing in the gold mining sector when the price of gold is on the decline.  The financial press grinds out dozens of article with graphs comparing the price of gold and the share price of the miners.  Many of these charts are short term, for the benefit of momentum trader.  For the long-term investor there are charts comparing the price of gold bullion or the price of a Gold ETF like GLD against an ETF basket of gold miners like the HUI index or the GDX index.
Average investors and analysts alike comment from time to time on the underperformance of gold miners, although the rising and declining moments are generally in the same direction.  The following three graphs display the relationship over different time periods, using the HUI, GDX, GLD, and the price of gold bullion for comparison.  The first is from US-based market focused blog site zerohege.com.


The SPDR Gold Index ETF (GLD) gives investors the opportunity to buy an interest in gold without taking physical possession of gold bullion.  Its price is based on the price of bullion.
Both the HUI and the GDX are Exchange Traded Funds (ETFs) that include a select “basket’ of gold miners.
What far too many investors forget is that although the three charts support the idea of a symbiotic relationship between the price of gold and the gold miners, the relationship compared is a single entity – gold – against multiple miners.  
All ETFs contain multiple components to give investors broad exposure to the sector, some more limited than others.  The HUI Index contains about 15 unhedged gold miners, all listed on US stock exchanges.  The GDX is global in scope, with 25 major components around the world.
ETFs are attractive investment vehicles for investors with neither the time nor the temperament to research individual stocks.  The basket decreases investing risk, but also impacts rewards.  The superior performance of some components in the basket is watered down by the mediocre and inferior performance of other components.  
The obvious question to ask here is are there individual gold miners that while tracking volatile gold prices still manage to offer their investors returns superior to an investment in gold as a commodity.
The Top 25 components in the GDX include six major ASX listed gold producers.  On 21 February of 2014 the price of gold reported on moneymetalsexchange.com was $1330.70 per ounce.  On 21 February of 2019 the price was $1349.80

Over the last five years the price of gold has appreciated about 1.4%.  The GLD ETF Index dropped 1.79% over that period.  From yahoofinance.com.au we can compare the share price performance of the six ASX listed gold miners in the GDX.

Investors with the patience to take a long-term approach to holding individual stocks are sometimes rewarded as time can smooth out volatile price movements.  There is little doubt that the price of gold impacts miners.  In the glory days of the great gold bull as the price eclipsed $1800 per ounce no one cared much about the cost of extracting the precious metal and bringing it to market.  Gold miners spent like wild dogs, acquiring exploration assets at breakneck speed with little concern for the capital required to bring an asset into production.  Once the price collapsed, miners began shedding assets, opening the door for smaller explorers.  Many in the investment community assumed gold miners could not be profitable at lower gold prices, underestimating the capacity of well-run miners to aggressively attack and lower their costs to maintain profitability.
Investing in any of the ASX miners in the following table could be considered a contrarian move, given the fact all have analyst consensus recommendations at HOLD.  However, the historical performance of the top miners suggests otherwise.

The stock price appreciation as shown in the graph above does not always match the total shareholder return for the period.  Total shareholder return includes dividends paid from free cash flow, the difference between earning and retained earnings.  In a year when the company’s capital needs exceed its earnings, free cash flow goes negative, reducing total shareholder equity for the period.
Return on Equity is a favored metric of many analysts since it measures how effective a company is at generating income from the available shareholder equity.  As a rule, an ROE between 15% and 20% is considered good but the more important thing to keep in mind is how the ROE compares to the average in the business sector in which the company operates.  The average trailing twelve-month (TTM) ROE for the mining sector – which includes miners of multiple commodities and of differing sizes – is 8.61% while the 5-year average is 11.65%.
The largest gold miner on the ASX – Newcrest Mining (NCM) – has the lowest numbers across the board on the historical performance metrics.  However, the company has a double-digit earnings growth forecast and as such is worth a look.  
Newcrest is also one of the largest gold miners in the world, and like many of its peers went on a fire sale to shed non-producing assets.  The company now has four operating mines located here in Australia and in Indonesia and Papua New Guinea with equity interest in two additional projects, one producing and the other in development.
Like many of the world’s largest miners, operating cost efficiencies were not a high priority in the heady days of the gold bull run.  Newcrest has worked hard to cut costs and the company’s recent Half Year 2019 reflected their efforts, with All in Sustaining Costs (ASIC) down to $747 per ounce, a record low for the company and a 13% reduction over the previous reporting period.  ASIC is the new standard for measuring the true total cost of mining, not limited to operational extraction costs.
Statutory profit was up 142% with underlying profit up 104%, fueled by a 6% increase in total production.  Surprisingly, investors were less than enthused, failing to boost the stock price, despite the fact the Half Year underlying profit of $237 million came close to equaling the Full Year 2018 result of $273 million.
Evolution Mining (EVN) is the only stock in the table that is not a pure-play gold producer, with silver mines and copper assets as well.  The company operates exclusively in Australia, with five gold and silver mines in operation and one in development.  
Evolution’s recently released Half Year 2019 Results were disappointing, to say the least, with both statutory and underlying profit down about 26%.  The company remains positive about the second half of the year, with a goal of reducing AISC to between AUD$615 and 650 per ounce.
Northern Star Resources (NST) remains the most promising gold miner on the ASX.  The company has multiple assets at its flagship Kalgoorlie site in Western Australia along with a wholly owned mines at Jundee and Tanami.  In mid-2018 the company expanded into the US, purchasing the Pogo gold mine in Alaska. 
In 2010 the company embarked on an acquisition strategy that led to Northern Star’s status as one of the top three gold miners in Australia.  Northern Star’s Half Year 2019 results presentation reflected on its strategy, claiming added shareholder value of AUD$5.7 billion over the period, with its market cap rising from $10 million in 2010 to its closing market cap for the calendar year 2018 of $5.9 billion.
For the Half Year the company reported a 43% increase in revenues and an 11% increase in underlying profit, with an AISC of AUD$1,275 per ounce.  The company has a strong balance sheet, with $AUD230 million cash on hand, despite having spent AUD$ 83 million on exploration and expansion at the Pogo mine.
Saracen Minerals (SAR) turned in the best share price performance year over year, advancing 102%.  The company has two mining operations in Western Australia, Carosue Dam and Thunderbox, both long-life mines with expansion potential.  Despite its small stature, the company’s financial performance over the last three years has been outstanding, with reported FY 2016 revenues of AUD$267 million almost doubling to the FY 2018 result of AUD$511 million.  Profit virtually tripled over the period, rising from AUD$25.9 million in FY 2016 to AUD$75.6 million in FY 2018.
The company has adopted a unique strategy for the sector, using internal cash flows to fund operations and expansion, leaving a debt-free balance sheet.  Saracen has eight exploration projects underway, with promising drilling results at two projects reported at the close of 2018.
Given the volatility of markets in general and the uncertainty with the price of gold, investors appear to be impressed with the lower risk investment in a company with no debt and a strategy of staying out of debt, not to mention the massive revenue and profit increases since FY 2016, up 85% and 190%.
St Barbara Limited (SBM) has gold mining operations in Western Australia and in Papua New Guinea.  The company is also debt-free and has expansion and exploration potential, but the Half Year 2019 Financial Results came as a shock to investors used to the company’s solid historical performance.  Production was up at the PNG facility with guidance increased for 2019, but lower production at the Gwalia operation here in Australia led to a 21% drop in underlying profit, from AUD$98 million to AUD$77 million. 
Although the price of gold is higher in Australian dollars, the weakness of the AUD versus the USD is benefiting ASX gold miners.  Gold is quoted in US dollars, so a one US dollar gold purchase converts to $1.41 for Aussie producers, as of 22 February.  This is good for the buyers as well, as the exchange rate allows them to purchase $1.41 in Australian goods for USD$1.00.
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