Because of The Van Eck Vectors Junior Gold Miners ETF (GDXJ) ETF becoming problematically large I put together an alternative index of junior gold mining stocks based on elite investors holdings. Having an allocation towards junior gold mining stocks can be very interesting.
How can we find a basket of attractive junior gold mining stocks without a lot of due diligence?
To put this index together I sorted the holdings famous value investors as tracked by Gurufocus for junior gold miners. For the purpose of the index junior gold miners have a market cap below $3 billion. Because these investors generally manage large sums of money they tend to invest in the larger miners but not exclusively.
Elite investors tracked include the likes of Ray Dalio, Jim Simons, Mario Gabelli, First Eagle, Joel Greenblatt, Caxton Associates, John Buckingham, David Dreman, Donald Smith among others.
Here's the current list:
|Company||Ticker||Market Cap||% of portfolios|
|Yamana Gold Inc||AUY||$3,018.66||4.32%|
|Alamos Gold Inc||AGI||$2,152.86||0.32%|
|Osisko Gold Royalties Ltd||OR||$1,666.22||0.12%|
|New Gold Inc||NGD||$1,613.05||0.15%|
|Novagold Resources Inc||NG||$1,195.82||2.18%|
|Eldorado Gold Corp||EGO||$946.03||0.09%|
|Seabridge Gold Inc||SA||$620.64||2.13%|
|AuRico Metals Inc||ARCTF||$234.35||0.30%|
|Asanko Gold Inc||AKG||$165.94||0.47%|
|Alio Gold Inc||ALO||$132.89||0.05%|
|International Tower Hill Mines Ltd||THM||$76.61||0.54%|
|Pershing Gold Corp||PGLC||$72.45||0.23%|
|Primero Mining Corp||PPPMF||$32.29||0.03%|
To help get an idea of the relative attractiveness of these ideas I've put together a table with a few key stats:
|Company Name||Symbol||Num of Analyst Following||EV-to-EBIT||PE Ratio||PB Ratio||EV-to-Revenue|
|Alamos Gold Inc||AGI||12||84.02||324||0.8||3.46|
|Alio Gold Inc||ALO||9||1.92||4.46||0.65||0.51|
|Anglogold Ashanti Ltd||AU||3||36.51||0||1.45||1.37|
|Asanko Gold Inc||AKG||6||7.4||53.5||0.41||0.98|
|AuRico Metals Inc||ARCTF||3||-61.2||0||1.76||23.43|
|Eldorado Gold Corp||EGO||11||34.83||0||0.26||2.47|
|International Tower Hill Mines Ltd||THM||0||-11.84||0||1.3||0|
|Kinross Gold Corp||KGC||13||18.25||37.62||1.13||1.59|
|New Gold Inc||NGD||13||21.12||18.22||0.66||2.7|
|Novagold Resources Inc||NG||1||-36.06||0||4.05||0|
|Osisko Gold Royalties Ltd||OR||10||37.1||32.55||1.06||18.07|
|Pershing Gold Corp||PGLC||2||-4.78||0||1.94||0|
|Primero Mining Corp||PPPMF||5||-0.27||0||0.19||0.72|
|Seabridge Gold Inc||SA||2||-82.42||0||2.1||0|
|Yamana Gold Inc||AUY||10||-7.81||0||0.66||2.36|
Sorting ideas on a simple P/E ratio is useful as it highlights companies that are obviously attractive. However, juniors are often investing heavily. The result is that quite a few don't generate any earnings yet. As a result they carry a zero earnings multiple or an extremely high one.
Reviewing price to book value can be useful as most of the book value of junior gold miners will be attributable to reserves. There are very stringent rules for when reserves can be put towards book value. Gold mining investors definitely benefit from experience and doing due diligence on the potential of companies to get their reserves expanded by accountancy rules without acquiring any additional stakes.
EV/EBIT is a great metric to get an idea of how profitable companies are currently while taking a potential heavy debt load into account.
Companies that really stand out based on these stats are International Tower Hill Mines Ltd (THM), Seabridge Gold Inc (SA), Alio Gold Inc (ALO), Yamana Gold Inc (AUY) and Iamgold Corp (IAG). That's not to say the case for other names can't be compelling but the value just isn't as obvious.
Elite investors in general decreased their exposure to junior gold miners. That's surprising. Last time I put together this index there were 25 junior gold mining picks. This time only 17 remained. One of the most concerning changes is how Jim Simmons Renaissance Capital almost completely withdrew from the space. Perhaps it is a function of the trend of rising interest rates which usually isn't great for gold miners.
Disclosure: I am/we are long EGO, THM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.