- Gold miners are materially undervalued
- This firm earns valuable royalties
- There is significant hidden balance sheet value
The twin headwinds of a subdued outlook for global economic growth and the determination of central banks to hold interest rates high to combat inflation have maintained pressure on miners’ share prices. However, the shifting macroeconomic environment and the end of interest rate hiking cycles should boost investor sentiment towards mining equities.
In absolute terms, the Bloomberg Commodity index is valued at 0.94 times the value of the FTSE All-World index, representing a 21 per cent discount to its 30-year average of 1.2 times, and more than 60 per cent below its peak valuation in 2012. Of course, the subdued performance over the past couple of years also reflects the cyclical nature of the mining industry and capital investment trends.
What makes this an interesting time to consider the recovery potential of metal prices and the valuations of miners is the shifting macroeconomic environment as major central banks call the end of their interest rate hiking cycles and start to ease monetary policy.
One below-the-radar company is a likely beneficiary. Its 41 per cent share price discount to NAV fails to factor in the substantial hidden balance sheet value in its largest holding which could be worth more than the company’s own market capitalisation.
Download PDF
