Is it time for precious metals equities what about barrick – barrick gold corporation (nyse abx) seeking alpha gasco abu dhabi contact

I have a long history investing in and analyzing precious metals and precious metals equities, as an investor, analyst, and portfolio manager, and I have owned the precious metals equities in size on various occasions over the past twenty years.

However, in 2015, even before the precious metals equities rebounded, which occurred at the tail end of 2015, and early 2016, the relative strength of precious metal equities versus their respective underlying precious metals started to improve. This was a signal that a rally was on the horizon in the precious metals equities, and we are seeing the same signs today. Thesis

The relative strength of precious metals equities is improving relative to the precious metals themselves, which is occurring alongside an improvement in fundamentals, building the foundation for a future significant price rally in precious metals shares. A Soul Crushing Bear Market

Precious metal stocks experienced a brutal bear market from late 2011 through early 2016, similar to many commodity equities, as the charts of the VanEck Vectors Gold Miners ETF ( GDX), and the VanEck Vector Junior Gold Miners ETF ( GDXJ) illustrate.

The answer is simple, Barrick’s management was spending money like drunken sailors at the peak of the market attempting to grow precious metals production, the most prominent example being their massive capital spending (over $5 billion) developing the Pascua-Lama mine, which straddled the Argentine-Chile border. Despite the massive capital spending, this project has never been fully developed (it has not yet produced any commercial production) and it has resulted in horrific expenses and write-downs in value for Barrick Gold.

The list of mistakes is legendary at Barrick, including unwinding their massive hedge book at material losses near the precious metals market peak, and the missteps at Pascua-Lama, however, the culture of the company has been transformed over the past five years.

Starting in 2012, Barrick, under the leadership of incoming chairman John Thornton, a former leader of a business school with previous ties to Goldman Sachs ( GS), who took over the baton of Barrick’s leadership in an orchestrated transition from legendary company founder Peter Munk, and former CEO Jamie Sokalsky, Barrick has become much more fiscally disciplined.

The disciplined capital allocation framework that we adopted in mid-2012 has been at the core of every decision we’ve made in the last year and half, and has put us in a much stronger position to deal with the challenging gold price environment our industry is facing today," Mr. Sokalsky said.

Wrapping up this section, there have been clear Have companies in the precious metals equity sector, with the streaming companies leading the way, while the Have Not companies have included some of the biggest precious metals producers today, alongside many of the smaller up and coming producers, creating a rich environment for active money managers to find value opportunities. Relative Price Strength Is Improving

In fact, this decline, which impacted me directly, as I held a large position in ABX, and was selling put options on the position, with terrific success for a long period of time, caused me to really study the capital cycle as I attempted to understand and correct my mistakes.

The value trap narrative has resurfaced today for precious metal equities, yet both the fundamental and technical landscapes have changed, as many of the precious metals equities are exhibiting relative out-performance to their primary precious metals benchmarks since their 2016 bottoms. Having said this, the improvement in relative strength took a pause during a majority of 2017, as the precious metals equities endured a long, trying correction.

With commodity prices strengthening across the board, and longer-term interest rates rising alongside increased inflationary expectations, as the charts below show, could it be time to turn our collective focus to precious metals equities again?

In summary, with a historic bear market now in the rear-view mirror, precious metals operators are much more disciplined today (this discipline was forced upon them by the downturn), and value-conscious investors are able to find companies like Barrick, which has trimmed almost all the fat, while repairing its balance sheets, and lowering costs.

To close, the virtuous, investor-friendly actions taken by Barrick have spread through the precious metals companies, and really throughout the downtrodden commodity companies, creating a much better-investing landscape than existed five to seven years ago. Thus, it is a good time to start digging deeper and finding those diamonds hidden in the rough, that are outside the scope of the liquidity flows today.