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Gold Mining Sector Generating Positive Free Cash Flow

Publicly traded gold miners are now back to generating positive free cash flow. Over the last twelve months, the gold mining sector has generated positive free cash flow equal to 0.22% of revenue. During this same period, the oil exploration & production sector generated record negative free cash flow equal to -25.36% of revenue.

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Despite gold miners now back to financial health with rapidly strengthening fundamentals vs. oil exploration & production companies in their worst ever financial shape – the oil exploration & production sector is currently being valued at an enterprise value/revenue ratio of 3.29 vs. the gold mining sector only being valued at an enterprise value/revenue ratio of 2.25. This is complete insanity, especially with the gold/WTI crude oil ratio finishing last week at a new decade high of over 30.

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Over the last 12 years, the gold mining sector has traded with a median enterprise value/revenue ratio of 4.87 vs. the oil E&P sector‘s median enterprise value/revenue ratio of 1.81. Based on these median multiples, NIA believes that gold/silver mining stocks are due for a 145.8% short-term rally vs. oil exploration & production stocks due for a 64.9% short-term decline.

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