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How the World’s Top Gold Mining Stocks Performed in 2020

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How the World's Top Gold Mining Stocks Performed in 2020

How Top Gold Mining Stocks Performed in 2020

Gold mining stocks and the GDX saw strong returns in 2020 as gold was one of the most resilient and best performing assets in a highly volatile year.

But picking gold mining stocks isn’t easy, as each company has a variety of individual projects and risks worth assessing. This is why the GDX (VanEck Vectors Gold Miners ETF), is one of the most popular methods investors choose to get exposure to players in the gold mining industry.

While the GDX and gold miners can generally offer leveraged upside compared to gold during bull markets, in 2020 the GDX returned 23%, just a couple of points shy from spot gold’s 25.1% return.

This graphic compares the returns of gold, the GDX, and the best and worst performing gold mining equities in the index.

Understanding the GDX ETF and its Value

The GDX is one of many index ETFs created by investment management firm VanEck and offers exposure to 52 of the top gold mining stocks.

It provides a straightforward way to invest in the largest names in the gold mining industry, while cutting down on some of the individual risks that many mining companies are exposed to. The GDX is VanEck’s largest and most popular ETF averaging ~$25M in volume every day, with the largest amount of total net assets at $15.3B.

In terms of its holdings, the GDX attempts to replicate the returns of the NYSE Arca Gold Miners Index (GDM), which tracks the overall performance of companies in the gold mining industry.

How the Largest Gold Miners Performed in 2020

As a market-cap weighted ETF, the GDX allocates more assets towards constituents with a higher market cap, resulting in larger gold mining companies making up more of the index’s holdings.

This results in the five largest companies in the GDX making up 39.5% of the index’s holdings, and the top 10 making up 59.3%.

An equally-weighted index of the top five GDX constituents returned 27.3% for the year, outperforming gold and the index by a few points. Meanwhile, an equally-weighted index of the top 10 constituents significantly underperformed, only returning 18.4%.

Newmont was the only company of the top five which outperformed gold and the overall index, returning 37.8% for the year. Wheaton Precious Metals (40.3%) and Kinross Gold (54.9%) were the only other companies in the top 10 that managed to outperform.

Kinross Gold was the best performer among the top constituents largely due to its strong Q3 results, where the company generated significant free cash flow while quadrupling reported net earnings. Along with these positive results, the company also announced its expectation to increase gold production by 20% over the next three years.

The Best and Worst Performers in 2020

Among the best and worst performers of the GDX, it was the smaller-sized companies in the bottom half of the ranking which either significantly over- or underperformed.

K92 Mining’s record gold production from their Kainantu gold mine, along with a significant resource increase at their high-grade Kora deposit nearby saw a return of 164.2%, with the company graduating from the TSX-V to the TSX at the end of 2020.

Four of the five worst performers for 2020 were Australian mining companies as the country entered its first recession in 30 years after severe COVID-19 lockdowns and restrictions. Bushfires early in the year disrupted shipments from Newcrest’s Cadia mine, and rising tensions with China (Australia’s largest trading partner) also contributed to double-digit drawdowns for some Australian gold miners.

The worst performer and last-ranked company in the index, Resolute Mining (-36.9%), had further disruptions in H2’2020 at their Syama gold mine in Mali. The military coup and resignation of Mali’s president Ibrahim Keïta in August was followed by unionized workers threatening strikes in September, slowing operations at Syama gold mine. Outright strikes eventually occurred before year’s end.

How Gold Mining Stocks are Chosen for the GDX

There are some ground rules which dictate how the index is weighted to ensure the GDM and GDX properly reflect the gold mining industry.

Along with the rules on the index’s weighting, there are company-specific requirements for inclusion into the GDM, and as a result the GDX:

  • Derive >50% of revenues from gold mining and related activities
  • Market capitalization >$750M
  • Average daily volume >50,000 shares over the past three months
  • Average daily value traded >$1M over the past three months

Gold mining stocks already in the index have some leeway regarding these requirements, and ultimately inclusion or exclusion from the index us up to the Index Administrator.

What 2021 Will Bring for Gold Mining Stocks

The GDX has had a muted start to the new year, with the index at -2.3% as it has mostly followed spot gold’s price.

Gold and gold mining stocks cooled off significantly following their strong rally Q1-Q3’2020, as positive developments regarding the COVID-19 vaccine have resulted in a stronger-than-expected U.S. dollar and a rise in treasury yields.

This being said, the arrival of new monetary stimulus in the U.S. could spur inflation-fearing investors towards gold and gold mining stocks as the year progresses.

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Explainer: What Key Factors Influence Gas Prices?

To help understand what’s happening at the pump, it’s important to first know what key factors dictate the price of gas.

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Explainer: What Key Factors Influence Gas Prices?

Across the United States, the cost of gas has been a hot topic of conversation lately, as prices reach record-breaking highs.

The national average now sits at $5.00 per gallon, and by the end of summer, this figure could grow to $6 per gallon, according to estimates by JPMorgan.

But before we can have an understanding of what’s happening at the pump, it’s important to first know what key factors dictate the price of gas.

This graphic, using data from the U.S. Energy Information Administration (EIA), outlines the main components that influence gas prices, providing each factor’s proportional impact on price.

The Four Main Factors

According to the EIA, there are four main factors that influence the price of gas:

  • Crude oil prices (54%)
  • Refining costs (14%)
  • Taxes (16%)
  • Distribution, and marketing costs (16%)

More than half the cost of filling your tank is influenced by the price of crude oil. Meanwhile, the rest of the price at the pump is split fairly equally between refining costs, marketing and distribution, and taxes.

Let’s look at each factor in more depth.

Crude Oil Prices

The most influential factor is the cost of crude oil, which is largely dictated by international supply and demand.

Despite being the world’s largest oil producer, the U.S. remains a net importer of crude oil, with the majority coming from Canada, Mexico, and Saudi Arabia. Because of America’s reliance on imports, U.S. gas prices are largely influenced by the global crude oil market.

A number of geopolitical factors can influence the crude oil market, but one of the biggest influences is the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia.

Established in 1960, OPEC was created to combat U.S. dominance of the global oil market. OPEC sets production targets for its 13 member countries, and historically, oil prices have been linked to changes in OPEC production. Today, OPEC countries are responsible for about 60% of internationally traded petroleum.

Refining Costs

Oil needs to be refined into gasoline before it can be used by consumers, which is why refining costs are factored into the price of gas.

The U.S. has hundreds of refineries across the country. The country’s largest refinery, owned by the Saudi Arabian company ​​Saudi Aramco, processes around 607,000 barrels of oil per day.

The exact cost of refining varies, depending on a number of factors such as the type of crude oil used, the processing technology available at the refinery, and the gasoline requirements in specific parts of the country.

In general, refining capacity in the U.S. has not been keeping up with oil demand. Several refineries shut down throughout the pandemic, but even before COVID-19, refining capacity in the U.S. was lagging behind demand. Incredibly, there haven’t been any brand-new refining facilities built in the country since 1977.

Taxes

In the U.S., taxes also play a critical role in determining the price of gas.

Across America, the average gasoline tax is $0.57 per gallon, however, the exact amount fluctuates from state to state. Here’s a look at the top five states with the highest gas taxes:

RankStateGas tax (per gallon)
1California$0.87
2Illinois$0.78
3Pennsylvania$0.77
4Hawaii$0.77
5New Jersey$0.69

*Note: figures include both state and federal tax

States with high gas taxes usually spend the extra money on improvements to their infrastructure or local transportation. For instance, Illinois doubled its gas taxes in 2019 as part of a $45 billion infrastructure plan.

California, the state with the highest tax on gas, is expecting to see a rate increase this July, which will drive gas prices up by around three cents per gallon.

Distribution and Marketing Costs

Lastly, the costs of distribution and marketing have an impact on the price of gas.

Gasoline is typically shipped from refineries to local terminals via pipelines. From there, the gasoline is processed further to ensure it meets market requirements or local government standards.

Gas stations then distribute the final product to the consumer. The cost of running a gas station varies—some gas stations are owned and operated by brand-name refineries like Chevron, while others are smaller-scale operations owned by independent merchants.

The big-name brands run a lot of advertisements. According to Morning Consult, Chevron, BP PLC, Exxon Mobil Corp., and Royal Dutch Shell PLC aired TV advertisements in the U.S. more than 44,495 times between June 1, 2020, and Aug. 31, 2021.

How Does the Russia-Ukraine Conflict Impact U.S. Gas Prices?

If only a fraction of America’s oil comes from Russia, why is the Russia-Ukraine conflict impacting prices in the U.S.?

Because oil is bought and sold on a global commodities market. So, when countries imposed sanctions on Russian oil, that put a squeeze on global supply, which ultimately drove up prices.

This supply shock could keep prices high for a while unless the U.S. falls into a recession, which is a growing possibility based on how recent data is trending.

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Real Assets

Mapped: The 10 Largest Gold Mines in the World, by Production

Where in the world are the largest gold mines?

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map of the 10 largest gold mines in the world

The 10 Largest Gold Mines in the World, by Production

Gold mining is a global business, with hundreds of mining companies digging for the precious metal in dozens of countries.

But where exactly are the largest gold mines in the world?

The above infographic uses data compiled from S&P Global Market Intelligence and company reports to map the top 10 gold-producing mines in 2021.

Editor’s Note: The article uses publicly available global production data from the World Gold Council to calculate the production share of each mine. The percentages slightly differ from those calculated by S&P.

The Top Gold Mines in 2021

The 10 largest gold mines are located across nine different countries in North America, Oceania, Africa, and Asia.

Together, they accounted for around 13 million ounces or 12% of global gold production in 2021.

RankMineLocationProduction (ounces)% of global production
#1Nevada Gold Mines🇺🇸 U.S. 3,311,0002.9%
#2Muruntau🇺🇿 Uzbekistan 2,990,0202.6%
#3Grasberg🇮🇩 Indonesia 1,370,0001.2%
#4Olimpiada🇷🇺 Russia 1,184,0681.0%
#5Pueblo Viejo🇩🇴 Dominican Republic 814,0000.7%
#6Kibali🇨🇩 Democratic Republic of the Congo 812,0000.7%
#7Cadia🇦🇺 Australia 764,8950.7%
#8Lihir🇵🇬 Papua New Guinea 737,0820.6%
#9Canadian Malartic🇨🇦 Canada 714,7840.6%
#10Boddington🇦🇺 Australia 696,0000.6%
N/ATotalN/A13,393,84911.7%

Share of global gold production is based on 3,561 tonnes (114.5 million troy ounces) of 2021 production as per the World Gold Council.

In 2019, the world’s two largest gold miners—Barrick Gold and Newmont Corporation—announced a historic joint venture combining their operations in Nevada. The resulting joint corporation, Nevada Gold Mines, is now the world’s largest gold mining complex with six mines churning out over 3.3 million ounces annually.

Uzbekistan’s state-owned Muruntau mine, one of the world’s deepest open-pit operations, produced just under 3 million ounces, making it the second-largest gold mine. Muruntau represents over 80% of Uzbekistan’s overall gold production.

Only two other mines—Grasberg and Olimpiada—produced more than 1 million ounces of gold in 2021. Grasberg is not only the third-largest gold mine but also one of the largest copper mines in the world. Olimpiada, owned by Russian gold mining giant Polyus, holds around 26 million ounces of gold reserves.

Polyus was also recently crowned the biggest miner in terms of gold reserves globally, holding over 104 million ounces of proven and probable gold between all deposits.

How Profitable is Gold Mining?

The price of gold is up by around 50% since 2016, and it’s hovering near the all-time high of $2,000/oz.

That’s good news for gold miners, who achieved record-high profit margins in 2020. For every ounce of gold produced in 2020, gold miners pocketed $828 on average, significantly higher than the previous high of $666/oz set in 2011.

With inflation rates hitting decade-highs in several countries, gold mining could be a sector to watch, especially given gold’s status as a traditional inflation hedge.

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