This Merger Will Produce The Largest Gold Development Company In North America

Thoughts on the deal

There has been a significant development in one of our top gold picks. In today’s piece I am going to give you my thoughts on the deal.

But let me start with a couple of charts to give you some broader context of the sorry state of gold mining.

This first shows GDXJ since 2019. (GDXJ represents a basket of gold mining companies in the US$1-5 billion market cap range).

Unlike the gold price, which on Sunday night broke out to all time highs, albeit briefly, mid-cap gold mining companies have seen falls, from peak to trough, of over 50%, even as recently as last month. And that’s the mid-caps. The small caps have been even worse.

What gives?

Small companies have underperformed large companies in practically every sector. In the case of mining, with rising rates, the cost of capital has increased - most gold development or exploration plays do not make money, remember - rather they burn lots of capital. Drilling is expensive. The market has punished them.

There’s also the fact that gold has been outperforming the mining companies since 2004, as this next chart shows. 

On the other hand, that chart has got forming a long-term bottom written all over it.

Is gold mining getting set for a long-term bull market?

It could well be.