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Gold Miners’ Earnings Rise as Valuations Await a Rebound
Tue May 27 2025
This is a non-independent marketing communication commissioned by Golden Prospect Precious Metals (GPM). The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Robert Crayfourd and Keith Watson, co-fund managers of Golden Prospect Precious Metals, note the emerging trend of improved earnings, wider profit margins and stronger free cash flow amongst gold miners as operational leverage begins to pay off. They also remain very constructive on the sector as a whole, stating that valuations of the gold miners remain historically low.
Gold has surged in recent months, averaging around $2,850/oz for Q1 (+7% on the previous quarter) driven by persistent inflationary pressures, geopolitical uncertainty, and central bank demand. While gold spot prices have pushed to near-record levels around the $3,400/oz mark, equity market valuations of the miners have yet to fully reflect this. This disconnect presents a compelling opportunity for investors, especially via specialist vehicles like Golden Prospect Precious Metals (GPPM).
We have previously written, see here, that sustained high average gold prices would not just support, but significantly amplify, profitability amongst the miners. This is because of their ability to exploit operational leverage, when revenue rises faster than costs, assuming costs are kept under control, an increase in the gold price can translate into a much larger percentage increase in earnings and free cash flow (FCF) for the miners. We predicated that this would begin to be seen in the miners Q1 results, of which many have just reported.
So how have they faired?
As the data now shows, that thesis has played out. Several gold Mining companies in our portfolio have started the trend of robust quarterly returns in the past month. They reported improved earnings, wider profit margins, and stronger FCF demonstrating the power of operational leverage in a high-gold price environment. Additionally, company results have shown a trend of reporting ahead of analysts’ expectations.
Valuations are still low by historical standards, and in many cases, have lagged behind the price action of the underlying metal. This disconnect between higher gold, better profitability, and lagging equity prices is the very thing GPPM is positioned to take advantage of.
Miners improving cash positions, but the markets haven’t priced that in
For investors, the opportunity is clear, the market has yet to fully re-rate these miners to reflect their improved financial performance. A coalescence of increasing and sustained high gold prices with below-average cost inflation positions the gold mining equites to deliver record financial metrics over 2025. With this and returning sentiment, there is scope for a significant revaluation in precious metals equities. This creates significant upside for GPPM, which invests in gold mining companies and offers investors opportunity to gain access, through a UK vehicle, to the lagging global precious metals mining equities, and with a greater potential upside to the gold price.
Golden Prospect Precious Metals has demonstrated a strong track record of capturing upside in gold bull markets. During previous periods of gold price rallies, such as the 2008 financial crisis and the COVID-19 pandemic, GPPM delivered meaningful outperformance. This historical sensitivity to spot gold gains provides investors with a leveraged play on rising gold, but through a diversified and actively managed vehicle.
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Source: Golden Prospect Precious Metals