I want to focus a sector that receives no love: Mining.
Trading at decade-lows with little investor interest, mining stocks today are like tech stocks in 2001. I'm going to show you how they have all the elements of a 10-bagger play, and how you should take advantage of the upcoming bull run
**PART 1: Qualities of a 10-Bagger**
Without overcomplicating things, a 10-bagger stock or industry can be summarized with these elements:
1. Left For Dead Prices - Prices that don't reflect the baked in value or potential growth of the company, especially compared to historic averages, since prices are typically mean-reverting.
2. Little Investor Participation - Trades that aren't crowded out by investors, muting potential future gains.
3. Ridiculous Potential - Massive margins of safety and explosive potential upside that lead to companies consistently growing their top line.
**PART 2: A Tale of Two Sectors**
https://preview.redd.it/a5aslgqpajje1.jpg?width=1341&format=pjpg&auto=webp&s=5045ac70d14bd4b629332bac9984ad0c845b1829
You've been a regard for investing in mining over the past \~30 years. The index rose over \~5x, and you're flat. Any active manager in Mining stocks has either been fired or full-ported into Apple at this point.
It's even more stark when you compare to tech. Over the past 30 years, the tech sector delivered \~5,000% return, dwarfing the broader market’s \~1,874%.
Investors have crowded the trade, leading to a situation where you nearly can't avoid exposure to the richly valued tech names:
https://preview.redd.it/47riv3obbjje1.jpg?width=1389&format=pjpg&auto=webp&s=e31b8099d02c792cbb737a2f9ee17374f99ef163
Safe to say miners aren't included in any meaningful allocation in today's indexes.
But do they have the potential to 10x from here?
**PART 3: Left for Dead Prices**
The most compelling case for a 10-bagger is being cheap. Buying Apple at 10-15 PE in the 2010's is retrospectively a no-brainer. It gives you an incredible margin of safety if you're buying growth for value prices.
Miners are cyclical companies deeply exposed to the price of the ores they mine. Whether it's copper, silver, gold, or rare metals, miners generally scale with the price of their underlying commodity.
https://preview.redd.it/670ubnytljje1.png?width=969&format=png&auto=webp&s=685e17313d2d2d33bed2d39c3733183eced31cba
For gold miners, this hasn't been the case. Despite gold roaring to highs around $2900 an ounce, the average gold miner is down over the past 20 years.
Many of these miners produce gold for less then $1000 an ounce and have been reinvesting their income into future production. Let's take a look under the hood at B2Gold $BTG
|B2Gold|Metrics|
|:-|:-|
|Total Assets|4,788,737Mln|
|Total Liabilities|1,599,657Mln|
|Book Value|\~3.2B|
|Market Cap|3.3B|
|TTM Operating Income|600Mln|
|5yr Avg Operating Income|672Mln|
|P/B|\~1X|
|P/OI|\~5X|
Wow. You're getting the company at book value today, and at a 20% income yield. It seems like it's deep value, so what are the growth prospects?
|B2Gold Company Expectations|Gold Ounces|
|:-|:-|
|2024|800K|
|2025|1Mln|
|2026|1.2Mln|
So what does this look like as far as their sales expectations? Let's see the price of gold:
https://preview.redd.it/00gmixjgnjje1.png?width=1083&format=png&auto=webp&s=f2b3030a72eb4b41b4938d400eeac334db5b28fa
Compared to the company's reported all-in-sustaining-cost of producing gold at $1,200 an ounce, the company generates about \~$1700 an ounce in cash at today's prices. Who said you needed to be a tech stock to get 50%+ margins?
So, let's take a look at their 2026 projected gold ounces produced vs. some potential prices of gold. Assuming 1.2Mln ounces produced in 2026, here is their operating income:
|Cost of Production / Gold Price|$2000|$2500|$3000|$4000|
|:-|:-|:-|:-|:-|
|$1200\*|$960Mln|$1560Mln|$2160Mln|**$3360Mln**|
|$1400|$720Mln|$1320Mln|$1920Mln|$3120Mln|
|$1600|**$480Mln**|$1080Mln|$1680Mln|$2880Mln|
The company reports an AISC of $1200, but I've extrapolated this to 1,400 and 1,600 to account for worst case scenarios. Today's gold price is near $3000, but I've shown more bearish moves to $2000 an ounce to show worst case scenarios.
If you price in a 30% increase in costs and a 30% decline in gold price, the company is still trading at only **\~6X** their projected operating income.
So, an incredible margin of safety in the bear case scenario. What about a bull case scenario where costs remain the same but gold increases another 30% from here in 2026? The company will earn **3.3B** in operating income, which is the entire market capitalization. **You are potentially buying this company for 1 Forward P/E.**
The vast majority of junior gold miners have very similar fundamentals and future growth prospects. The entire industry is priced as if gold is falling +50% from here.
Similar miners are in the same boat. You don't have to look at gold. Let's take mega miner BHP Group $BHP for a ride. You're getting the company today for 5X 5 year average operating income as well, at 2X book value. Of course upside is more limited with a larger company, but the mineral diversification in BHP means that you benefit from price increases over many minerals.
**PART 4: Little Investor Participation**
Tell me this, when's the last time you saw someone shilling mining stocks on WSB? When's the last time a mining stock IPO'd on robinhood, or your friend showed you his mining tendies? There's basically zero investor interest left in the sector. It's tarnished by ESG, political risk, and just not being "sexy".
If you were an active manager following mining over the past 20 years, you lost your job. Why would anyone keep the regard that failed to beat the market for 20+ years?
https://preview.redd.it/2hl2u5drpjje1.png?width=1040&format=png&auto=webp&s=859518764be92fb4e04cfe5721935682f6d11d2b
The mining index has plummeted in comparison to its historic market participation. The pessimism is a clear setup for a multi-bagger contrarian play.
**PART 5: Ridiculous Potential**
I've already outlined an example miner for you to see the kinds of valuations present in the sector, but the Junior Miner Index ($GDXJ) is filled to the brim with similar companies. When you look at a mining industry's 20 year history on google, the chart looks like shit. But have they ever outperformed?
Mining stocks have generally been counter-cyclical: When markets fizzle out, they find their time to boom.
They surged in the Depression, mooned in the 70s inflation crisis:
https://preview.redd.it/zxc6j2nhqjje1.png?width=1034&format=png&auto=webp&s=3c32453a5afd3e8390247fd643c5191303f98714
https://preview.redd.it/c4hgv5ckqjje1.png?width=1038&format=png&auto=webp&s=b43b557c4d3cf05889c6f1a13c96c4ec86e939cd
Specifically, they are counter-cyclical with Tech, and boomed during the last tech cycle wash in 2000:
https://preview.redd.it/5berkqxrqjje1.png?width=1034&format=png&auto=webp&s=b067f3c82ff2fd8fa3d4ff135feec946d5e9f3fa
And of course, the prices of the ores they're pulling out of the ground are expected to rise as well. Inflation is ripping the price of gold and looks to stop no time soon.
Steel and iron used for building is ramping up with urbanization and economic prosperity, whereas rare earth metals are finding their space in batteries, EVs, and semiconductors.
Copper is the backbone of electrification, and every single year the world breaks the previous year's record for humans living in urban environments. Global prosperity is the true secular bull market, and metals & mining are deeply connected to global growth in general.
Nearly all metals are also hedged to the growth of emerging markets, giving any US investors some necessary global exposure.
https://preview.redd.it/yyn79l0xujje1.png?width=1129&format=png&auto=webp&s=3a5416495af3dbc9ade3ff9a80a107c34b26eb99
**PART 6: How to Play It**
Here's my takes on the best opportunities in mining:
|Opportunity|Sector|Justification|
|:-|:-|:-|
|Higher Opportunity|Individual small-cap miners ($BTG) \[Gold, Coal, Iron, Copper, ETC\]|Diving into individual names helps you avoid exposure to low quality companies in the indexes. Small caps have the best potential to scale earnings parabolically.|
||Junior Miner Index ($GDXJ)|General exposure to smallcap gold|
||Individual large-cap miners ($BHP)|While not as sensitive to price movements to the upside, large-caps are less sensitive to downside movements in the underlying commodities, and you can avoid some junk by diving into individual names|
||Metals & Mining ETFs ($PICK, $COPX)|Exposure beyond gold is great, as many of these miners across different metals have similar valuations and vary in their industry verticals.|
||Gold Miner ETF ($GDX)|General exposure to largecap gold|
|Lower Opportunity|Rare Earth Metals ($REMX)|While I think the same thesis is in tact for rare earth metal miners, their valuations trade at a substantial premium to the more "classical" miners of gold, silver, coal, iron, copper, nickel etc.|
My plays:
I'm long the following:
https://preview.redd.it/jf9rsqmn0kje1.png?width=395&format=png&auto=webp&s=8a545df7a3687358bb1ec7739aa7adaa855ec34f
https://preview.redd.it/jvotmymn0kje1.png?width=383&format=png&auto=webp&s=a67361da344478392b3d29d7d772a921158c23af
https://preview.redd.it/i1g267nn0kje1.png?width=370&format=png&auto=webp&s=db76144393fe70db03eed48e64219d606ef975ce
https://preview.redd.it/guzharmn0kje1.png?width=383&format=png&auto=webp&s=6589f635566ae9a976248ae3040f67b69c971d9f
https://preview.redd.it/tjpt8nmn0kje1.png?width=388&format=png&auto=webp&s=f877b83eb62dc762d75ab82169e86640c9d0489a
https://preview.redd.it/i99qsnmn0kje1.png?width=396&format=png&auto=webp&s=4ca153a9b85e4a477c193bf1a75f8286620179e2
https://preview.redd.it/77jsapmn0kje1.png?width=389&format=png&auto=webp&s=6767ebd76f704fdbf264ae3d3d0e4c59e816ba30
https://preview.redd.it/j72ppsmn0kje1.png?width=395&format=png&auto=webp&s=19ef0a371e8aacb273252a340a64f13e849e2ed1
Reposting with positions.