With record margins and healthy cash flow in 2020, the mining sector is in position for a strong Q1 earnings season, says Douglas Groh, co-manager of Sprott’s Gold Equity Fund.
“It’s the best market I have ever seen for the mining sector,” he said in an interview with Kitco News. “Companies are in great shape and are in a strong position to give back to shareholders.”
Gold prices had tumbled 10% in the first quarter, but the sector remains strong, as most miners have clean balance sheets and less debt, allowing them to thrive in a lower price environment.
2020 was a bit of rollercoaster as miners navigated COVID-19 related mining closures early in the year, then had to ramp up production to take advantage of the all-time high gold prices. The first quarter of 2021 is likely going to be about getting back into a normal production rhythm, said Groh, and a stable mining sector in the first quarter could attract new investors eager to take advantage of how undervalued mining companies are.
“Steady performance into the middle of the year could be very constructive for companies and investors. That, along with company valuations, really has to change attitudes,” he added. “So consistency and valuations are going to become real key for bringing in a broader audience.”
As the global economy continues to recover from the pandemic, mining activity will pick up by the second half of the year, he said. "Unlike what happened in 2010 and 2011, companies are not growing for the sake of growing. A lot of companies are taking incremental approaches and looking at expanding their production organically. This will keep balance sheets in check.”
For investors looking to gain exposure to gold miners, the Sprott Gold Miners ETF (SGDM ) offers active exposure to gold and silver miners, while the Sprott Junior Gold Miners ETF (SGDJ ) tracks the up-and-comers in the space, junior gold miners.
Both are poised to take advantage of the once-in-a-lifetime market conditions that promise to fuel the sector throughout the year.
For more information, please visit the Gold & Silver Investing Channel.