Gold mining has historically been a poor way to capture gold’s value, with overinvestment, low-quality assets, and poor capital discipline destroying returns. Today, elevated gold prices are supported by disciplined capex, strong free cash flow, and conservative balance sheets, transforming miners into cash-generative, shareholder-friendly businesses. Apex Mining Co., Inc. (PSE:APX:₱8.22) exemplifies this shift. Once forced to close its Maco Mines, the company now delivers strong margins, rising returns on invested capital, and robust free cash flow, supporting dividends and demonstrating disciplined capital allocation. Market expectations are modest: even conservative assumptions imply upside, while realistic growth scenarios suggest meaningful gains. With a price-to-economic book value near 1.03, disciplined management, and structural tailwinds from the current gold regime, Apex Mining is very attractive for investors seeking both value and growth in the gold mining sector.
Elevated Prices Are Supportable
Historically, gold mines have been terrible investments. My first job out of university, in 2007, was running a small-scale family-owned gold mine in Zimbabwe, Scallywag Mine, and it was with some horror that I heard an old joke in the mining community in Gwanda: “It takes a large fortune to make a small one in gold mining”. In fact, for many of the older gold miners, it was a misnomer to call them “gold miners” because gold mining had been so unprofitable for so long that many instead treated tailings, or what was colloquially referred to as “dumps”, a highly profitable endeavour. I remember seeing old shafts, last worked by Germans before the start of the First World War, symbols of the unattractiveness of the business. In fact, Apex Mining, the subject of this thesis, closed the Maco Mines in Maco, Davao de Oro, Philippines, in 1991, as a result of depressed gold prices. Such has been the historical capital destruction in the industry that Reuters observed,
Anyone acquainted with the industry might find that hard to believe. Historically, gold miners have offered remarkably poor protection against rising prices. Over the past three decades the index of U.S. consumer prices more than doubled and the price of gold rose sixfold. Over the same period, the Philadelphia Gold and Silver Index of listed miners climbed by about 40%. The mining benchmark remains well below its peak in 2011. Since that date U.S. prices and bullion have risen by 33% and 55%, respectively.
Few industries have a more dismal record of allocating capital. After the gold price took off in the early 2000s, miners pursued growth at any cost. They borrowed freely, splurged on new developments, and pushed up costs by extracting gold from low quality mines – what’s known in the business as low-grading. Debt levels at the four senior miners – Newmont (NEM.N), Barrick Gold (ABX.TO), Agnico Eagle Mines (AEM.TO), and Kinross Gold (K.TO) – rose to an average 50% of net assets. After the gold price dropped in 2011, the miners were left stranded. Barrick, the world’s largest miner at the time, announced some $23 billion of asset writedowns between 2012 and 2015.
The year I entered mining turned out to be near the start of a great bull run, a run that has largely continued to the present day.
Source: World Gold Council
As I said in an earlier and more general thesis on the iShares MSCI Global Gold Miners ETF (RING), and the iShares MSCI World ETF (URTH),
That era is, for now, a thing of the past. Today, gold prices are so high that gold miners can comfortably pay their all-in sustaining costs and all-in costs. Although the gold price has shot up to dizzying heights, part of a run that began around 2002, thereabouts, capex has actually fallen from its peak in 2012. In fact, capex for the top miners globally, across all commodities, has not recovered from the 2012-2013 heights, despite the temptations posed by the commodities boom. The economic result is clear: since 2010, supply has risen from 4,316.9 tonnes in 2010 to 4,974 tonnes in 2024, compounding at just 1% a year. Although demand is currently below supply, on balance, demand is more likely to rise quickly than supply is, pushing prices up. I try to avoid demand forecasts. What is essential is the realisation that the excesses of previous cycles have been avoided, supporting high gold prices.
A recent discussion in the Financial Times shows the extent to which capital allocation has improved in the industry. Not only have miners shunned capex expansion, but M&A deals are far more conservative. As prices have risen, gold miners have become free cash flow (FCF) spigots. The FT cites a report by TD Securities which shows that, at current prices, Barrick Gold Corporation (GOLD) will earn an FCF yield of 9.5% and the Newmont Corporation (NEM) will enjoy an FCF yield of 7.5%. Kinross has doubled its FCF to $1.3 billion year-over-year. Gold miners have also become better about returning capital to shareholders. Barrick Gold, on the back of doubling its FCF in Q4 2024, announced a $1 billion share buyback. AngloGold Ashanti plc (JSE:ANG) declared a final dividend of $0.91 per share, five times the previous year’s dividend, having said that its balance sheet is at its strongest in a decade. Gold Fields Limited (JSE:GFI) has also said it will initiate a share buyback this year, while Harmony Gold Mining Company Limited (JSE:HAR) has said it will be able to self-fund the construction of a new copper mine in Australia.
My own research suggests that a high-cost gold miner can make $1,000/oz more than it costs to produce, while low-cost producers can earn half of the gold price in profits. Usually, gold miners do not do as well as gold in terms of returns, but as profitability has risen, the market has started to wake up to the attractive economics of gold mining. In March, gold mining ETFs experienced their first net monthly inflows in six months. We are at a moment now where, if gold continues to do well, gold miners will benefit on the market. The capital discipline within the industry is even more remarkable when one considers that gold miners did not budget for prices in excess of $3,000. They have been built for lower prices, so that they are now earning excess FCF which, based on recent history, will be allocated in a disciplined fashion.
Gold as a Stable Currency
In the paper, “Mining Gold for Regimes”, Colin Suvak et al, of LongTail Alpha, use a novel methodology to identify financial market regimes and they apply it to an analysis of gold’s performance across different macroeconomic environments. They use a relevance-based approach that identifies periods similar to the current one but distinct from historical averages. This creates a transparent, flexible, and non-arbitrary framework positioned between simple and complex methods. They employ k-means clustering on a relevance-based encoding matrix (RBEM) to automatically identify regimes. In doing do, they identify three “Faces” of Gold: a “Real Asset Regime”, in which gold acts as an inflation hedge, with average returns of 14.5% per year, a “Commodity Regime”, in which gold behaves like other commodities, with modest returns of 3.4% per year, and a “Stable Currency Regime”, in which gold serves as a flight-to-safety asset -especially during periods of loose monetary/fiscal policy-, delivering returns of 6.9% per year. When gold serves as a real asset, it has a high sensitivity to inflation, and a negative beta to real rates; when it serves as a commodity, it has a positive beta to equities and real rates, and a high correlation with other commodities, and when it serves as a stable currency, it has the lowest volatility, richest valuation, and most negative beta to real rates. We are presently in an epoch of gold as a stable currency, an epoch that began in the Global Financial Crisis. Spot prices in the post-2008 regime are at their highest level in half a century, all falling in the 99.8th percentile of gold prices. This has implications for portfolio allocation: under a Real Asset Regime, the optimal portfolio allocation is 30.9% equities, 54.5% bonds, and 14.6% gold, whereas under a Commodity regime, the traditional 60-40 portfolio is near-optimal, and under a gold regime, a 59.5% equities, 33.8% bonds, 6.7% gold allocation is optimal, although I take this as a long-run allocation and not what investors should have at present.
Gold regimes are persistent, and there is no evidence as yet that gold’s regime is changing. Although the current trade war could change what regime gold is in, it could deepen the entrenchment of this regime. For now, investors should expect that gold’s spot price will continue to rise. Indeed, it is hard to think of a better investment. As Vineer Bhansali, one of the authors of the paper, and the founder and chief investment officer (CIO) of LongTail Alpha noted, among the many reasons why “gold is the only alternative”, is that gold is a superior safe haven to the Swiss franc and Japanese yen; its liquidity is similar to that of Treasury bonds and is likely rising, in my opinion, as the U.S.’s market dynamics take on the characteristics of an emerging market; it thrives under inflation; deterioration in financial assets is a plus for gold; increased sovereign credit risk for the U.S. benefits it; geopolitical crisis makes it attractive; and, deficits and taxes –such as tariffs– are good for gold prices.
A Child of the Bull Run
Present-day Apex Mining was given new life by this bull run. In its Q1 2025 filing, the company reported an ore grade for the Maco Mines of 3.16 grams of gold per tonne of ore (g/t Au), a grade that is not what one would deem high-grade. When I started, 6g/t was generally considered workable, and the mine often reached 12g/t, and never lower than 7g/t. If the current grade reflects realities in 1991, it is likely the reason why the mines had to be mothballed.
In its 2024 annual report, management explains than in 2005, Canadian miner, Crew Gold Corporation, and its Philippine subsidiary, Mapula Creek Gold Corporation, acquired 28% and 45% respectively, of Apex Mining’s shares, as part of an effort to rehabilitate and refurbish the Maco Mines’ processing plant. Crew Gold and Mapula would later sell their stakes in the company, and, today, the largest shareholder is Prime Strategic Holdings, Inc., which controls 64.63% of Apex Mining’s outstanding shares through its direct and indirect holdings. Alongside the Maco Mines, the company has, since 2015, owned Itogon-Suyoc Resources, Inc. (ISRI), which holds the Sangilo and Suyoc mines in Benguet province. Apex also owns Monte Oro Resources & Energy, Inc. (MORE), which in turn controls Paracale Gold Ltd. and Coral Resources Philippines, operator of a mineral processing plant in José Panganiban, Camarines Norte. The Maco Mines and ISRI’s Sangilo operation produce gold and silver bullions and buttons, with output refined by Heraeus Ltd. in Hong Kong, while its copper ambitions were strengthened in February 2023 with the acquisition of Asia Alliance Mining Resources Corporation, giving it 19,135.12 hectares of copper claims in Davao de Oro.
A Fast Growing, Highly Profitable Miner
Since 2020, the company’s operating revenue has compounded by 20.81% a year, from ₱6.32 billion in 2020 to ₱16.26 billion in the last twelve months (LTM). By way of references, according to Credit Suisse’s “The Base Rate Book”, between 1950 and 2015, the mean and median 5-year sales CAGR were 6.9% and 5.2% respectively. In that time, Apex Mining’s net operating profit after tax (NOPAT) compounded by 28.11% a year, from ₱1.63 billion to ₱5.6 billion. NOPAT margins in that period averaged 30.47%, rising from 25.85% to 34.66%. The firm’s rising NOPAT margins have occurred in tandem with an improvement in its balance sheet efficiency, with invested capital turns ticking up from 0.52 to 0.66 in that time. The result of rising NOPAT margins and invested capital turns has been a marked upscaling in Apex Mining’s return on invested capital (ROIC) from 14.25% to 21.6%. In that period, Apex Mining’s incremental ROIC has averaged 141.16% and has always been positive, last dipping below 5% in 2021, and currently standing at 11.68%.
Dividends Supported By FCF Generation
Surging profitability has brought with it a gush of free cash flow (FCF), with the firm growing FCF from ₱568.17 million in 2020 to ₱8.84 billion in the LTM. In the last five years, Apex Mines has generated ₱7.29 billion in FCF, some 16.98% of its present market capitalisation. LTM FCF has an extraordinary yield of 19.68%. With dividend payments beginning in 2022, totalling ₱925.6 million since then, the company has ample room to support and expand its highly conservative dividend payments.
Management Creating Value
Since Alfred Marshall first published his Principles of Economics, economists have known that a firm creates value when it earns a return greater than the cost of capital. Indeed, this is the most important of management’s tasks. In that, management, led by Luis R. Sarmiento, the president and CEO, has succeeded, with the firm earning an economic profit throughout the 2020-LTM period. Economic profits have compounded by 30.23% in that time, from ₱702.13 million to ₱2.63 billion. In the LTM, that amounts to ₱0.42 per share, compared to ₱0.35 per share in 2024.
Further Upside in Apex’ Valuation
At the current share price, ₱8.22 at time of writing, Apex Mining has a price-to-economic book value (PEBV) of 1.03, implying that the market expects just an at-most 3% increase in its NOPAT from current levels. Using my reverse discounted cash flow model (DCF), I teased out the expectations implied by the current share price. This should be read with the accompanying spreadsheet.
In the first scenario, I determined the hurdles revenue and NOPAT growth must meet to justify the current price. There,
- revenue compounds by a modest 5% a year, and
- NOPAT margin remains at 34.66%.
In that scenario, the company’s market-implied competitive advantage period (MICAP) is less than a year, wherein its shareholder value per share equals the current share price. In this scenario, the company earns ₱15.89 billion in revenue and ₱5.51 billion in NOPAT, by the end of 2025.
If, however, those price-implied expectations are exceeded, and,
- revenue compounds by 10%, and
- NOPAT margin remains at 34.66%, then,
Apex Mining’s stock is worth ₱9.18 today, an upside of 11.68% from the present price.
Finally, if,
- revenue compounds by 15%, and,
- NOPAT margin remains at 34.66%, then,
Apex Mining is worth ₱9.54 today, an upside of 16.06% from the present price.
In these scenarios, I have purposefully frozen the impact of a change in NOPAT margin to current levels. Yet, there is evidence from VanEck that suggests that as gold prices climb, gold miners margins will climb as well; and evidence from Farmonaut that investments by 60% of gold miners into new tech will likely lead to greater operational efficiency. PwC, on the other hand, have pointed to cost pressures pushing margins down in mid-2025. Apex Mining’s investments into operational improvements, such as equipment upgrades, drain tunnel developments, and use of training simulators, should boost efficiency, support ongoing production targets, and, at a minimum, weigh against the cost-pressures discussed by PwC.
Impact of Accounting Adjustments
I made numerous accounting adjustments to Apex Mining’s LTM financial statements, with the following impact:
Income Statement: I made ₱1.52 billion in adjustments to calculate NOPAT, with the net effect of adding ₱710.65 million in non-operating expenses. The adjustments are equal to 30.77% of Apex Mining’s IFRS net income.
Balance Sheet: I made ₱8.2 billion in adjustments to calculate invested capital with a net increase of ₱7.39 billion. One of the largest of these adjustments was ₱1.85 billion in excess cash, an adjustment which, on its own, is worth 5.81% of reported assets.
Valuation: I made ₱7.21 billion in adjustments with the net effect of reducing shareholder value by ₱3.49 billion. The largest of these adjustments was ₱5.35 billion in adjusted total debt, representing 11.47% of Apex Mining’s market cap.