We are witnessing a historical move in the gold stock arena.  As we speak, the HUI-index is breaking out of its downward trend. This is confirmed by the GDX, the gold mining ETF. Check this Bloomberg terminal chart. As you can see, the GDX has room to move from $15 to $17, and even $20 in the coming days. But this is just the start of a new bull market.

Things could stay turbulent for the gold mining sector.

But a start is a start, no matter how you look at it. And this, ladies and gentlemen, is one heck of a start! 

But don’t get us wrong. Did commodity producers do stupid things at the top of the cycle? Absolutely. We’ve seen value-destructing debt-financed M&A. We’ve seen billions of CAPEX being thrown into what we now recognize as sinkholes.

But these companies learned. Managements were replaced. Costs were cut. Humility and the shareholder perspective retook the center stage in a lot of cases.

We also need to remember that gold mining will always be a margin game. Gold and silver prices have come down. But miners profit from declining input costs.

Companies located outside the US also receive a huge boost from depreciating currencies. It is therefore no surprise that we’ve witnessed a nearly commensurate decline in all-in sustaining costs (AISC) at gold miners.

As a result, we’re about to see positive free cash flows at various gold miners this year, even at $ 1.100 gold.

This is obviously a very encouraging prospect after many quarters of cash burn.

With cash flows looking better, are investors appreciating the operational improvement? Not at all. The bear took its toll. Sentiment is still depressed. Gold mining stocks are now trading at the lowest price-to-cash-flow multiples we have seen in decades, if ever.

And remember when gold stocks used to trade comfortably above their NAVs, given their leverage to gold prices and embedded exploration potential? Investors are currently able to buy at large discounts to NAV!