UBS Equities-Gold Mining _Gold stocks enjoying some time in the sunshine...-117213141

ab12 August 2025Global ResearchGold Mining Gold stocks enjoying 'some time in the sunshine' -> what's next? 2Q results help drive sustained outperformance of gold equities After a multi-year period of underperformance, gold equities (GDX Index) have outperformed the gold price by >40% YTD, notably over the last 3mths the gold price has been range-bound but GDX has outperformed gold by 15% with GFI/ANG up 40%/30 & NEM/KGC 30/25%; in contrast the large cap Australian golds NST/EVN are down ~10%. Gold miners have had a poor track record in recent years resulting in valuation de-rating; but in our view 1Q/2Q25 results were a net positive for the NA/EMEA/SA gold miners with the stocks generally delivering record FCF, 2025 production/cost guidance generally maintained (despite higher royalties), management teams demonstrating discipline with limited increases in capex & increasing cash returns; NST/EVN are the exceptions with opex/capex inflation in Australia more sticky (LINK). While it's still early days in our view the sector is starting to rebuild investor confidence/trust. What's next? Balance sheets are in great shape and if the gold price remains in the current range we expect the run-rate of buybacks to accelerate in 2H25. We expect organic growth projects to be accelerated as long-term price assumptions are increased faster than cost/capex assumptions improving IRRs and we see potential for M&A to heat-up. Albeit the message appears to be disciplined organic growth and a bias to regional consolidation and portfolio tidy-up over major M&A. Gold equities have re-rated in 2025...but are still trading below 2019 valuations We analyse aggregate EBITDA, net income & multiples for the GDX index (page 3) to identify if bottom up headwinds (production downgrades & cost inflation) have been enough to offset positive gold price momentum and calculate aggregate consensus valuations for the large cap gold miners. Between 2019 (average) and end 2024 the GDX underperformed gold price by ~50%; but despite persistent inflation & poor operational performance, multiple compression was the key driver of underperformance with 12m forward consensus PE de-rating by >45% (21x -> 11x) & EV/EBITDA ~30% (8.3x -> 5.8x). YTD the GDX has outperformed gold by >40%, around half of this reflects operational leverage to gold price upside but 12m forward consensus PE & EV/EBITDA multiples have re-rated by ~20%. Gold equities are not as cheap as they were, but with GDX trading ~15% EV/EBITDA discount (~7.0x vs ~8.5x) & ~35% PE discount (13x vs 21x) vs 2019, in our view valuations are also not stretched. With the sector mostly net cash and accelerating cash returns, EV/EBITDA multiples generally lower & FCF yields higher vs historical levels, we continue to see good value and positive operational/earnings momentum for gold equities. Remain positive but more selective preferring 'cheaper turnaround stories'Material performance dispersion has also been a feature o