Q1 Earnings - The Next Miner Catalyst?Friday April 22, 2016 14:07
During the last few years of the vicious bear market, quality majors and mid-tiers have done a very good job of lowering costs and trimming corporate fat while readying for the next bull cycle. With the huge write-downs of unrealistically priced deposits behind them, the miners that had the foresight to properly prepare for the turnaround could reap the largest gains over the next several years.
Gold just had its best quarter in 30 years, gaining roughly 30% to close at $1235/oz. The Q1 results of the sector leaders will start to be published next week as we begin to see how well the miners have fared in preparation for the beginning of what I believe was the first quarter of the next multi-year precious metal bull.
We had a glimpse of what may occur in the quality miners with the reaction to a sub-par mid-tier miner Q1 production release last week. On April 7th, Coeur Mining (CDE) released its Q1 production results that were below expectations and were also met the next day with analyst downgrades. What did the already overbought share price do? Not only did it rise on the day of the release with the metals flat, it also rose on the analyst downgrades the next day! I am very curious to see what the market reaction will be to this mostly silver miner when they report earnings on April 27th. Silver did not perform as well as gold during Q1 and market expectations are for yet another sub-par quarter for Coeur. However, this has not hampered the share price as CDE has gained over 400% from it’s January low of $1.62 US. We can infer what the share prices of the majors and mid-tiers (that were already making profits during Q4 2015 when the gold price barely averaged $1100/oz), may do when their Q1 financials are released with gold now nearly $150 higher.
Meanwhile, on April 7th, the GDX made a breakaway gap up following five weeks of consolidation that digested the initial rebound off of the bear market bottom. That bottom occurred after six months of high volume accumulation that followed an 80% decline since September 2011. That six-month base and recent five week long consolidation could provide the foundation that facilitates an advance in GDX to the $27-$28 level. Judging by the current short-term bearishness that persists in this sector, I believe the first move off of this 6-month base was mostly short covering. This next move could be fueled by the group of investors that have been waiting for a correction largely due to the overwhelming short-term bearish views of sector newsletters and pundits based on the commitment of traders report (CoT).
Moving forward, pay close attention to the market reactions of sector leader Q1 financials starting with Newmont Mining (NEM) on April 20th. I have an inkling that the results could very well spark the beginning of a Q1 earnings catalyst that takes this sector even higher before we finally have a sizeable, yet healthy correction (20%-30%) into the summer. Potential upside targets are $27-$28 for GDX and 250-260 for the HUI.
David Erfle is a 52 year old self-taught mining sector investor. He stumbled upon the mining sector in 2003 as he was looking to invest into a growing sector of the market. After researching the gains made from the 2001 bottom in the tiny gold and silver sector he became fascinated with this niche market. So much so that in 2005 he decided to sell his home and invest the entire proceeds from the sale into junior mining companies. When his account had tripled by September, 2007, he decided to quit his job as the Telecommunications Equipment Buyer at UCLA and make investing in this sector his full time job. He personally survived two bear markets, witnessed incredible sector changes and had to alter his investment philosophy numerous times in order to adapt to changing market conditions."