An Introduction
This article presents a completely revised approach to tracking the performance of equities in the gold and silver stocks sector. Previously we tracked, and analyzed, the performance of just 6 gold/silver producing stocks in our Large Cap Gold Equities Portfolio. Our new portfolio however, the MunAiMarkets Gold/Silver ETF Portfolio, provides a complete overview of the sector based on 4 categories – producer, developer, explorer and royalty/streaming companies – that encompass 87% of the gold/silver ‘mining” sector (i.e. 253 companies) for the most insightful analysis available on the internet – anywhere!
Most investors talk about the 290 gold (and silver) stocks publicly trading in the same breath but they are not necessarily the same.
What’s the Difference Between Gold/Silver Producer, Developer and Explorer Companies?
- Explorer companies are in the early stages of the mining lifecycle. They search for new gold/silver deposits by conducting geological surveys, drilling, and sampling. Explorers are high-risk because they haven’t yet confirmed the presence of economically viable gold deposits and are referred to as “junior” mining companies. They have small market capitalizations and more limited financial resources and their stock prices can be highly volatile, influenced by factors such as exploration results, commodity prices, and market sentiment.
- Developer companies take over once explorers find a promising deposit. They conduct feasibility studies to determine if the deposit can be mined profitably, work on securing permits, financing, and planning the construction of the mine. This stage is less risky than exploration but still carries significant challenges. They, too, have small market capitalizations, limited financial resources and volatile stock prices.
- Producer companies operate fully functioning mines that extract and sell gold. Producers focus on optimizing production, managing costs, and ensuring mine safety. They are exposed to market fluctuations in gold prices, which can impact profitability.
In summary, each stage has different risk and reward profiles, with explorers offering the highest potential returns but also the greatest risk, while producers generally offer more stability but lower growth potential.
What’s the Difference Between Royalty and Streaming “Mining” Companies?
Royalty and streaming mining companies provide alternative financing to mining companies by purchasing future production or revenues in exchange for upfront cash payments.
- Royalty Companies receive a percentage of the revenue generated from a mining project, regardless of the commodity produced. They don’t handle the physical metal but get a share of the revenue.
- Streaming Companies receive the right to purchase a portion of their future production at a discounted price in return for their upfront payment which allows them to benefit from the upside of precious metals production without the risks associated with operating mines themselves.
While such companies are usually referred as “mining” companies they are, in reality, what is referred to as “merchant bankers” to the mining sector (not just of gold and silver) with innovative ways to receive “interest” on their financial assistance.
A Peek At The MunAiMarkets Gold/Silver ETF Portfolio
Based on the above new focus the MunAiMarkets Gold/Silver ETF Portfolio looks like this:
- Producer stocks are tracked in the VanEck Gold Miners ETF (GDX):
- # Holdings: 62
- Average Market Capitalization: $22.2B
- Management Expense Ratio: 0.51%
- Annual Dividend: $0.50 (approx. 1.36% yield)
- Average Price/Earnings Ratio: 30.8
- Developer stocks are tracked in the VanEck Junior Gold Miners ETF (GDXJ):
- # Holdings: 88
- Average Market Capitalization: $5.6B
- Management Expense Ratio: 0.52%
- Annual Dividend: $0.27 (approx. 0.59% yield)
- Average Price/Earnings Ratio: 28.7
- Explorer stocks are tracked in
- the Global X Silver Miners ETF (SIL):
- # Holdings: 35
- Average Market Capitalization: $31.5M
- Management Expense Ratio: 0.65%
- Annual Dividend: $0.27 (approx. 0.28% yield)
- Average Price/Earnings Ratio: 29.8
- the Sprott Junior Gold Miners ETF (SGDJ):
- # Holdings: 40
- Average Market Capitalization: $3.1M
- Management Expense Ratio: 0.50%
- Annual Dividend: $2.18 (approx. 6.1% yield)
- Average Price/Earnings Ratio: 14.0
- the Global X Silver Miners ETF (SIL):
- Royalty/Streaming mining company stocks are tracked in the U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU) which includes companies that earn over 50% of their revenue from precious metals through royalties and streams.
- # Holdings: 28
- Average Market Capitalization: $3.2M
- Management Expense Ratio: 0.60%
- Annual Dividend: $.34 (approx. 1.7% yield)
- Average Price/Earnings Ratio: 19.2
- Physical Gold tracked in the SPDR® Gold Shares ETF (GLD) with a management expense ratio of $0.40%
- # Holdings: 1
- Physical Silver tracked in the iShares Silver Trust ETF (SLV) with a management expense ratio of $0.50%
-
- # Holdings: 1
-
Starting in January 2025 I will begin providing a snapshot of how each category has performed the previous week, MTD/month and YTD to help investors determine which, if any, category they should consider investing in.
