It is fairly common knowledge that the gold mining industry has been one of the worst performing sectors in the capital markets over the last five years. From major established gold producers such as Harmony Gold Mining and Kinross falling to under $2 per share amidst doubts about their ability to service debt, to the bankruptcy or fire-sale takeover of countless junior exploration companies — the decline in gold prices over the last few years has spared few victims in the mining world.
Numerous fundamental reasons have been offered to explain the severity of the decline. Rising cash costs, an inability to finance exploration at favorable rates, and fears of mine nationalization have all been raised as reasons for the brutal bear market. While we can see merit to each possibility, as fundamental-based technicians we would rather let the market show us its opinion as opposed to trying to pinpoint a single scapegoat.
Given that we expect a historic low to be forming in gold over the course of the next 6-12 months (LINK: http://www.gold-eagle.com/article/gold-forecast-final-low-targets-bear-market), it seems appropriate to revisit the gold mining sector at this juncture to have a glimpse of what might be the fate of the surviving companies that actually dig the precious metal out of the ground.
Our analysis shows that a significant revaluation in this sector is due to begin over the course of the next 12-18 months. There are historical precedents for individual companies to see gains well in excess of 1,000% during these types of revaluations. Because even a small allocation of one’s portfolio to this thesis can have a tremendous wealth-building effect, we present the case here.