Mining Monthly: January Edition
What you need to know:• Gold had strong start to the year rising over $100/oz to $1928/oz in January. Copper also rose dramatically, rallying 12% to $4.20/lb
• We anticipate 2023 to be a standout year for both precious metals and base metals and encourage investors to position themselves accordingly
• Many central banks bought record levels of gold in January fuelling the price increase; gold takes hold as a safe-haven
Sentiment Update
As we anticipated from our December note, the mining sector had a strong start to the year with gold and copper breaking out to near-term highs up 6% to $1928/oz and 12% to $4.20/lb, respectively, during the month of January. Silver, lead, and some other metals struggled, however the equities still performed well. The breakout month for gold and copper drove the miners to outperform broader markets with the GDX, SIL, and COPX up 11.7%, 7.5%, and 16.6%, respectively, compared to the TSX which was up 7.1%. We anticipate this strong start to the year for precious metals to continue as a recession becomes increasingly inevitable, rate hikes come to an end, quantitative tightening slows, and central banks quickly build their gold reserves.
On Feb 1st, the Fed raised rates 25 bps, its smallest increase in 11 months, bringing the target for the federal funds rate to a range of 4.5% to 4.75% (compared to the previously stated 2023 target of 5.1%). Despite Powell stating another hike is likely in March, this is another step in the direction of a pivot. Markets rose on the news signalling its belief that the fight against inflation is almost over. We don’t share that opinion and think inflation will be stickier than expected. With inflation declining at a measly pace, we think that in 2023, gold will increasingly be viewed as a safe-haven especially considering the deteriorating economic data and potential for lower interest rates.
Following a strong month in the mining equity space, we believe there exists further upside as the negative sentiment towards mining investment begins to lighten on the back of significant market outperformance. Investor sentiment towards the producers, who have battled dramatic cost inflation over the last several months, has begun to turn positive as the peaking (and now declining) of inflation and rising gold price should make for a strong first quarter if things persist. Many developers are stuck between a rock and a hard place as investors wait to see the full effect inflation on capex estimates and the financing terms due to elevated rates, while the recent rise in the gold price doesn’t help much as most economic studies will continue to use conservative gold price estimates in the $1,500-1,600/oz range. We will be monitoring the results of newly released economic studies as well as financing terms for mine construction over the next several months before forming an investment decision in the developers. The explorers, despite having a strong January, remain inexpensive and continue to trade at an average of ~$33/oz (in the ground), down ~50% from 2020 highs.
Molybdenum had a record month rising 58% to $73.5/kg.
Alamos Gold is engaged in the exploration, mine development, and the mining and extraction of precious metals, primarily gold. Co.'s s primary asset is the Mulatos Mine and holds the mineral rights to the Salamandra group of concessions in the State of Sonora, Mexico, which includes several known satellite gold occurrences.
Angling Direct is engaged in specialist fishing tackle retailing in the U.K. Co. sells fishing tackle products and related products through a network of 15 Angling Direct retail stores located in the U.K. and also online via its own website (www.anglingdirect.co.uk) and other third party websites. Co. has sold over 21,500 fishing tackle products, including capital items, consumables, luggage and clothing. Co. also owns and sells fishing tackle products under its own brand 'Advanta®'. Co.'s retail stores are located in Sheffield, Lincoln, Wroxham, Norwich, Beeccles, Colchester, Clemsford, Waltham Cross, Rayleigh, Reading, Crayford, Sittingbourne, Ashford, Willenhall and Halesowen.
Anglogold Ashanti Limited. AngloGold Ashanti Limited (AngloGold Ashanti) is a gold mining company. The Company's business activities span the spectrum of the mining value chain. Its main product is gold. Its portfolio includes over 17 mines in approximately nine countries. It also produces silver, uranium and sulfuric acid as by-products. The Company operates through four segments: South Africa, Continental Africa, Australasia and Americas. Its South African operations comprise of the West Wits operations, including Mponeng and TauTona, and surface operations. It has operations in Continental Africa in locations, including Democratic Republic of the Congo, Ghana, Guinea, Mali and Tanzania. The Australasia segment includes the operations in Australia. It consists of Sunrise Dam and Tropicana. The Americas segment includes the operations in Argentina, Brazil and the United States.
Dundee Precious Metals is a Canadian based international mining company engaged in the acquisition, exploration, development and mining of precious metals properties.
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.
IAMGold is engaged in the exploration for, development and operation of gold mining properties, and the operation of a niobium mine.
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.
Royal Gold acquires and manages precious metal streams, royalties and similar interests. The company acquires existing stream and royalty interests or finances projects that are in production or in the development stage in exchange for stream or royalty interests. A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement. Royalties are non-operating interests in mining projects that provide the right to a portion of revenue or metals produced from the project after deducting specified costs, if any.
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