The profitability of global gold miners has surged above that of the broader share market, but the sector continues to trade at a significant discount to global equities, in a growing disconnect between performance and market pricing.
Analysis from one of Australia’s largest ETF providers, Betashares, shows return on equity across the global gold mining sector climbed from 8.7% in January to 20.6% in August, an increase of more than 130% in just eight months.
The improvement helped the sector leapfrog share market, where return on equity stands at 15.9%, as gold miners were less lucrative than the equity market at the start of the year.
However, despite the sharp increase in profitability, investors have shown little appetite to re-rate the business.
Betashares data shows its Global Gold Miners Currency Hedged ETF traded on 11.7 times forward earnings in August, compared with 18.4 times for its Global Shares ETF.
But those multiples stood at 13.4 times and 20.1 times respectively at the beginning of the year, meaning the valuation discount applied to gold miners has widened rather than narrowed.
“What makes the situation unusual is that the market has not responded in kind,” Tom Wickenden, Investment Strategist at Betashares, said.
“MNRS is at 11.7 times forward earnings against 18.4 times for global shares, and that discount has widened from where it stood in January, not closed, despite the improvement in profitability.”
Nevertheless, Wickenden said investors seemed to be taking notice, as Australian gold miner ETFs attracted strong consecutive net inflows of $115.6 million in August and $95.3 million in July.
“With structural support to the gold price, through higher central bank reserves and monthly buying, alongside the potential for near-term cyclical catalysts, like fears around US debt and currency debasement, global gold miners could be poised to see significant returns if they maintain their earnings and re-rate higher,” he said.
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