By the Numbers, Mining Stocks Are Undervalued

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There are many reasons behind this divergence between gold stocks and the underlying asset, gold. But the most important was, that investors were explicitly not willing to take risk. But once risk appetite returns, investors will find out that many mining stocks are trading at considerable discounts to their implied value.

How can I say mining stocks are over- or undervalued? I’d have to do the math for all the listed companies, which is more or less impossible.

But there is a more convenient and possibly even more accurate way to argue that a market sector is trading with a significant discount.

In mining, the most important value driver is the value of the underlying asset, e.g. gold. If gold rises shouldn’t gold stocks rise too? In the recent months, particularly junior mining stocks did not rise even though gold saw a spectacular performance.

On the other hand, big cap mining stocks did benefit from the rising gold price but nevertheless were underperforming.

There are many reasons behind this divergence. But the most important was, that investors were explicitly not willing to take risk. But once risk appetite returns, investors will find out that many mining stocks are trading at considerable discounts to their implied value.

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