Gold Mining Stocks

About Gold Mining Stocks

Gold miners are a leveraged bet on gold that has a long history of failing to deliver the leverage. The metal price is set elsewhere and the mine's costs are largely fixed, so the margin should swing much harder than gold does. In practice cost inflation, disappointing grades and value-destroying acquisitions have repeatedly eaten the upside, and plenty of investors have concluded they would rather just own the metal.

If you do own the miners, jurisdiction is the risk that actually matters. A deposit sits wherever it sits, and governments change royalty rates, tax terms and permits with no recourse for the owner. Two miners with identical rock and identical costs are not the same investment if one of them is in a country that might nationalize it.

The royalty and streaming companies are the interesting alternative. They fund somebody else's mine up front in exchange for a fixed share of production, own no equipment, employ no crews, and therefore do not absorb cost inflation at the mine. They have generally been better businesses than the miners they finance, with a fraction of the operational risk.

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