Gold Stocks Are Undervalued | Imaru Casanova (VanEck Fireside Chat #4)

Episode Summary

Executive Summary: Imaru Casanova argues gold’s rally is driven by central bank buying, strong Asian physical demand, and geopolitical risk, with Western investors still absent. He sees further upside as Fed cuts and lower real rates support gold, and is especially constructive on gold equities because margins are expanding while stocks still lag the metal. He also explains valuation methods, jurisdiction risk, royalty/streaming models, and why silver may catch up.

Main Topics: Gold’s bull market drivers (Priority: 5/5): Casanova says the rally reflects safe-haven demand, geopolitical tensions, record central bank buying since 2022, and strong Asian physical/jewelry demand. The missing ingredient is renewed Western investment demand. Interest rates, real rates, and Fed cuts (Priority: 5/5): He explains that lower real rates are traditionally bullish for gold and argues markets price the future, so anticipated Fed easing is already supportive. He sees September cuts as gold-positive. How VanEck values gold miners (Priority: 5/5): He details a mine-by-mine valuation approach focused on production, reserve life, resources, cash costs, sustaining costs, debt, taxes, and especially free cash flow rather than net income. Gold equities vs. the gold price (Priority: 5/5): Casanova argues miners have lagged bullion and still discount a lower gold price than spot, so margin expansion could drive catch-up performance if gold stays near $2,500/oz. Jurisdiction risk and capital discipline (Priority: 4/5): He emphasizes that mine location materially affects valuation and that investors pay premiums for Canada/U.S./Australia versus riskier jurisdictions. He favors companies with disciplined capital allocation, dividends, and buybacks. Royalty and streaming companies (Priority: 4/5): He describes royalty/streamers as diversified, lower-cost-risk ways to gain exposure to gold production. He owns the main names but is underweight Franco-Nevada after the Cobre Panama shutdown risk. Silver outlook and portfolio role (Priority: 3/5): Casanova is constructive on silver because the gold/silver ratio remains elevated and silver has industrial demand tailwinds, especially solar, but notes the investable silver producer universe is small.

Key Arguments: Gold is supported by a structural mix of central bank buying, Asian physical demand, and geopolitical risk; Western investor participation has not yet returned. The Fed’s move toward rate cuts matters because lower real rates reduce the opportunity cost of owning a non-yielding asset like gold. Markets are forward-looking, so gold can rise before policy easing actually begins, as seen during the tightening cycle. Gold miners should be valued on long-term free cash flow, not just earnings, because accounting noise and mine-life assumptions distort net income. Current margins are attractive: gold price has risen while all-in sustaining costs have remained relatively contained, expanding free cash flow. Gold equities remain cheap relative to bullion, and the sector has not fully priced a $2,500/oz gold environment. Jurisdiction matters: stable legal and permitting regimes deserve premiums, while political and community risk can heavily discount otherwise good assets. Royalty/streaming businesses are attractive because they are diversified and largely insulated from operating costs, though they are less leveraged to gold than producers. Good management is reflected in meeting guidance, disciplined acquisitions, prudent spending, and shareholder returns such as dividends and buybacks. A common investor mistake is assuming current grade and current costs persist for the full mine life; grades can revert toward average deposit grades, changing costs materially. Silver could outperform if the gold/silver ratio mean-reverts and industrial demand, especially from solar, strengthens further.

Data Points: Gold price increase over the past year: around 30% - Casanova cites this as evidence of the current bull market in gold. Central bank buying start: 2022, especially the second half - He links the surge in buying to Russia’s invasion of Ukraine and reserve diversification. Gold mining all-in sustaining cost (Q2 index average): a little over $1,400/oz - He references a broker/sector average as a cost benchmark. Gold price at end of Q2: a little under $2,400/oz - Used to illustrate margin expansion for miners. Implied margin at Q2: about $910/oz - Gold price minus all-in sustaining cost. Current gold price discussed: over $2,500/oz - Used to infer that implied margins are now above $1,000/oz if costs hold steady. Valuation discount embedded in gold equities: about 20% discount to current spot gold price - He cites Scotia’s work to show miners are still lagging bullion. GDX price comparison: roughly the same level as when gold was $1,800-$1,900/oz - Illustrates how equities have underperformed the metal despite higher gold prices. Portfolio exposure to junior companies: about 27% - He says the active portfolio has meaningful exposure to the junior space. Portfolio exposure to developers: about 15% - He notes a large share is in early-stage, drill-driven names. Silver exposure in the fund: around 8% - He frames silver as a smaller but meaningful part of the precious metals allocation. Gold share of fund: over 80% - Most exposure remains in gold rather than silver. Historic gold/silver ratio: closer to 65 historically; around 85 today - He uses the ratio to argue silver could outperform if mean reversion occurs. Cobre Panama exposure at Franco-Nevada: approximately 20% of revenues and valuation - Explains why the firm reduced its Franco-Nevada position after shutdown risk emerged. Mexico weighting in active strategy before 2008: 13%-14% - Shows how jurisdiction risk has reduced exposure over time. Mine-life example: 10 years from reserves plus potentially 10 more years from resources - Illustrates why resource conversion matters in valuation.

Pivotal Quotes: "the outlook is very positive and that we haven't yet seen the western investor come back so a re-emergence of that demand could be very positive for gold from here" — Imaru Casanova: On what could drive the next leg higher in gold prices. "i just want to know what this company is worth to me they're worth the level of free cash flow they produce" — Imaru Casanova: On why she prioritizes free cash flow over net income in miner valuation. "gold equities are discounting a price that is about 20% below the current spot price" — Imaru Casanova: On why gold miners still look cheap relative to bullion.

Implications: Gold may have more room to run if Western investors return and the Fed cuts rates. For miners, strong margins and disciplined capital allocation could drive catch-up gains. Investors should focus on jurisdiction, grade, costs, and free cash flow, not just headline production.