Mining Monthly: June Edition
What you need to know:• The precious metals markets were down slightly in the month of June, however, we view this as a healthy consolidation period following significant price increases since November 2022.
• M&A slowed in June primarily due to the new uncertainty regarding interest rates following strong economic data and the BoC raising 25bps.
• Safe-haven assets like gold and silver continue to look highly attractive with inflation remaining sticky and rates likely to decline by 2024.
Sentiment Update
June was similar to May for the gold price, posting a modest 2.2% decline to $1,919.1/oz, while silver fell 3.1% to $22.8/oz, and copper increased 2.8% to $3.7/lb. Mining equities also fell modestly with the GDX down 2.9%, underperforming broader markets like the S&P 500 which was up 6.3% and the TSX which was up 3.0%. The battery metals space remained mainly flat through the month and lithium held onto its large gains made last month (up 68% in May), being up ~3% during June. We believe the last two months of consolidation for precious metals and other commodities is healthy considering the significant increase in prices since November 2022. We look forward to the metals regaining their upward momentum over the next few months, after years of under-investment in the sector.
M&A slowed during June which we believe was due to the lack of clarity on the direction of interest rates. As described in our April and May Mining Monthly notes, there was a sizeable spike in M&A transactions due to the potential of peaking of interest rates, however, new data suggests that both the U.S. and Canada may continue to tighten (as exemplified by the June 7th hike from the BoC). We believe this lack of clarity may further slow transactions until a more lasting pivot is guided from both the Fed and BoC, where we expect M&A to pick-up again.
On June 7th, the Bank of Canada increased rates by 25 bps to 4.75%, breaking a conditional pause put in place after the last hike in January. On the other hand, on June 13th, the Fed decided not to raise rates and maintained its target rate at 5.00% to 5.25%. This June pause marks the first policy meeting at which the FOMC has not raised interest rates since it began tightening in March 2022. However, the pause is likely only temporary as the market anticipates additional rate hikes coming.
On June 13th, U.S. inflation came in at 4.0% YoY and 0.1% MoM, compared to consensus of 4.1% YoY and 0.2% MoM. This compares to U.S. Core inflation data which came in as 5.3% YoY and 0.4% MoM, in line with consensus expectations. Canadian core inflation was lower than expectations, posting 3.7% YoY and 0.4% MoM vs. consensus of 3.9% YoY and 0.5% MoM. Much of this drop is attributable to a large decrease in energy prices which are down 12.4% YoY. On June 29th, the U.S. GDP Growth Rate came in at +2.0% QoQ vs. consensus of +1.4%, highlighting strong growth but a sizeable gap in GDP growth to the inflation rate still remains. Canadian MoM GDP Growth came in at 0.0% vs. 0.2% for consensus and down from the +0.1% last month. Despite the recent inflation numbers being lower than expectations, every inflation metric still remains far above traditional target inflation levels. As a result, the Bank of Canada will likely hike by another 25 basis points in July while leaving the door open to further tightening if the data fails to cooperate over the summer. We believe the stickiness of inflation and continued rate hikes will increasingly push investors to gold as a safe-haven asset in 2023.
Agnico-Eagle Mines is a gold mining company with mining operations in Canada, Mexico and Finland. Co. earns a proportion of its revenues from the production and sale of gold in both dore bar and concentrate form. The remainder of revenue and cash flow is generated by the production and sale of byproduct metals. The revenue from byproduct metals is mainly generated by production at the LaRonde mine in Canada (silver, zinc, copper and lead) and the Pinos Altos mine in Mexico (silver).
Artemis Gold Inc is a Canada-based gold development company. The Company is engaged in identification, acquisition and development of gold properties. The Company is working under GK Project that is approximately 17 kilometer west of the community of Telegraph Creek, northwestern British Columbia.
Barrick Gold is engaged in the production and sale of gold, as well as related activities such as exploration and mine development. Co. also produces copper and hold interests in oil and gas properties located in Canada. Co.'s mining operations are concentrated in three regional business units: North America, South America and Australia Pacific. Co. also hold a 73.9% equity interest in African Barrick Gold plc that owns gold mines and exploration properties in Africa. Co.'s copper business unit contains producing copper mines located in Chile and Zambia; and a mine under construction located in Saudi Arabia.
Endurance Gold is engaged in the exploration and development of mineral properties in North America and has not yet determined whether its properties contain ore reserves that are economically recoverable. The recoverability of the amounts expended on mineral interests by Co. is dependent upon the existence of economically recoverable reserves, the ability of Co. to obtain necessary financing to complete exploration and development of its mineral properties and upon future profitable production or proceeds from disposition of its mineral interests.
First Quantum Minerals is engaged in the production of copper, nickel, gold, zinc, platinum-group elements and acid, and related activities including exploration and development. Co. has operating mines located in Zambia, Australia, Finland, Turkey, Spain and Mauritania. Co. is developing the Trident project in Zambia, the Cobre Panama copper project in Panama, exploring the Haquira copper deposit in Peru and the Taca Taca copper-gold-molybdenum porphyry deposit in Argentina. Co.'s operating segments are individual mine development projects or mine operations. The Corporate and Other segment evaluates and acquires new mineral properties and includes Co.'s metal marketing division.
MAG Silver is an exploration company conducting work on mineral properties it has staked or acquired by way of option agreement, principally in Mexico. Co. has not yet determined whether the properties on which it is conducting exploration contain any ore reserves that are economically recoverable. The recoverability of these amounts is dependent upon the existence of economically recoverable reserves, Co.'s ability to obtain the necessary financing to complete the development of the interests, and future profitable production, or alternatively, upon Co.’s ability to dispose of its interests on a profitable basis.
Marathon Gold is engaged in the acquisition, exploration and development of precious and base metal prospects.
Newmont is primarily a gold producer with operations and/or assets in the United States, Canada, Mexico, Dominican Republic, Peru, Suriname, Argentina, Chile, Australia and Ghana. The company is also engaged in the production of copper, silver, lead and zinc. The company's operations are organized in five geographic regions; North America, South America, Australia, Africa and Nevada.
SSR Mining is engaged in the acquisition, exploration, development and operation of silver-dominant resource properties located in the Americas. Co.'s strategic focus is to optimize the production of silver from its Pirquitas mine in Argentina, and to advance other principal development and exploration projects including San Luis in Peru, Diablillos in Argentina, and Pitarrilla and San Agustin in Mexico. In addition to its principal projects, Co. holds a geologically-diverse portfolio of other predominantly silver projects in various stages of exploration.
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