Mining Monthly: May Edition
What you need to know:• The precious metals and base metals markets were down in the month of May, however, we view this as a healthy pull-back following two strong months in March and April.
• M&A remained elevated in the month following what appears to be the peaking of rates and inflation, and persistent elevated metals prices.
• With inflation remaining sticky, we believe investors have begun turning to safe-haven assets like gold and silver.
Sentiment Update
Following two very strong months in March and April (Gold, Silver, and the GDX were up 8.6%, 19.3%, and 18.9%, respectively), precious metals took a breath and were down slightly in the month of May. Gold fell 2.4% in the month to $1,967.8/oz, silver fell 7.3% to $23.5/oz, and copper declined 4.6% to $3.7/lb. Mining equities also fell with the GDX down 7.0%, underperforming broader markets like the S&P 500 up 0.2% and TSX down 5.2%. The battery metals space was mixed with cobalt and nickel down 15% and 16%, respectively, while Lithium had a large bounce-back month up 68% following a sizeable drop of 29% in April.
M&A continued at elevated levels following a big month in April, highlighted in the M&A section below. As described in our April Mining Monthly note, we believe the reason for the significant increase in M&A is with interest rates peaking, majors now have more clarity into the borrowing cost of future investments. Additionally, with limited transactions, a lack of exploration spending, and elevated metals prices over the last year, major miners are flush with cash and have begun spending it.
On May 3rd, the Fed increased rates by 25 bps for its 10th interest rate increase in just over a year, taking the Fed Funds Rate to a target range of 5-5.25%. More importantly, the Fed hinted to a potential end of hikes at the June 13-14 meeting.
On May 9th, U.S. inflation came in at 4.9% YoY and 0.4% MoM, compared to consensus of 5.0% YoY and 0.4% MoM. This compares to U.S. Core inflation data which came in as 5.5% YoY and 0.4% MoM, in line with consensus expectations. Canadian core inflation was slightly above expectations, posting 4.1% vs. consensus of 3.8%. On May 25th, the U.S. GDP Growth Rate came in at +1.3% QoQ vs. consensus of +1.1%, up slightly from the +1.1% posted last quarter, highlighting slight growth but a sizeable gap in GDP growth to the inflation rate. Canadian MoM GDP Growth came in at 0.0% vs. -0.1% for consensus and down from the +0.1% last month. We reiterate that with inflation declining at a measly pace, gold will increasingly be viewed as a safe-haven in 2023, especially considering deteriorating economic data (and bank failures), potential for lower interest rates in H2, and various central banks accumulating gold.
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.
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.
Fortuna Silver Mines is engaged in the mining, exploration, extraction and processing of silver, gold and zinc mine properties in southern Peru and Mexico.
Marathon Gold is engaged in the acquisition, exploration and development of precious and base metal prospects.
Newcrest Mining is engaged in the exploration, mine development, mine operations and the sale of gold and gold/copper concentrate. As of June 30 2016, Co.'s reportable operating segments were: Cadia, Australia; Telfer, Australia; Lihir, Papua New Guinea (PNG); Gosowong, Indonesia; Hidden Valley Joint Venture (JV) (50% interest), PNG; Bonikro, COte d'Ivoire; and Exploration and Other, which mainly comprises projects in the exploration, evaluation and feasibility phase and includes Wafi-Golpu JV (50% interest) in PNG, Namosi JV (70.67% interest) in Fiji, O'Callaghans in Australia and Co.'s global greenfields exploration portfolio.
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.
Pan American Silver is engaged in the production and sale of silver, gold and other base metals including copper, lead and zinc as well as other related activities, including exploration, extraction, processing, refining and reclamation. Co.'s primary product (silver) is produced in Peru, Mexico, Argentina and Bolivia. Additionally, Co. has project development activities in Peru, Mexico and Argentina, and exploration activities throughout South America and Mexico.
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.
Teck Resources is engaged in mining and related activities including exploration, development, processing, smelting and refining. Co.'s major products are steelmaking coal, copper and zinc. Co. also produces precious metals, lead, molybdenum, electrical power, fertilizers and other metals. Co. also owns an interest in certain oil sands leases and have partnership interests in an oil sands development project and wind power project.
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