Mining Monthly: February Edition
What you need to know:• The metals and mining market took a breath after a strong January with gold and copper pulling back 5% and 3%, respectively
• As full-year earnings roll in, the effects of inflation are taking hold with costs rising dramatically and earnings missing expectations
• Despite the February slowdown, we anticipate 2023 to be a standout year for both precious metals and base metals and encourage investors to position themselves accordingly
• PDAC starts this weekend – we expect a significant turnout as we continue through the early innings of a metals & mining bull market
Sentiment Update
The mining sector gave back most of its gains the month of February following a record start to the year in January. During February, gold fell 5% to $1,827/oz and copper declined 3% to $4.10/lb. Silver (-11%) and the group of battery metals (Lithium, Cobalt, Nickel) also struggled due to their higher relative volatility. Equities also settled down after large gains in January (as a reminder, the GDX and COPX were up 11.7% and 16.6% respectively last month), falling 14.1% and 8.3% in February. Mining equities underperformed broader markets with the TSX being down only 2.6% and S&P 500 being down 3.9%. Much of the market struggles this month were driven by higher-than-expected inflation and a hawkish fed outlook.
As mentioned in our January Mining Monthly note, inflation is appearing to be stickier than the market expected as on February 14th, U.S. inflation came in at 6.4% YoY compared to consensus of 6.2% with core inflation at 5.6% YoY compared to consensus of 5.5%. MoM inflation came in at 0.5% compared to expectations of 0.5% and 0.1% last month. The inflation data increased the chances of a 50-bps hike at the next fed meeting on March 21-22 in comparison to the originally anticipated 25-bps. The probability of a 50-bps hike is estimated to be 25%. As a result, the S&P 500 had its worst day of 2023 on February 21st
followed by a 5% decline from its peak in late January. We saw an even more pronounced effect in the gold price due to its inverse correlation with higher interest rates. 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, potential for lower interest rates in the back half of the year, and various central banks accumulating gold.
Following a sizeable dip in the mining equity space in February, we believe there lies a buying opportunity as the bullish sentiment continues relative to 2022. With many producers missing cost expectations in Q4/22 (lower expectations and multiples) and the peak of inflation hopefully in the rear-view mirror, we believe there exists many opportunities with the heavily cash flowing producers that have been able to manage inflationary pressures on opex and capex. Additionally, the M&A space is heating up with B2Gold recently acquiring Sabina Gold & Silver in an all-share transaction equivalent to C$1.1B and back-and-forth M&A talks between Newcrest and Newmont. As developers continue to trade at trough multiples due to inflationary fears on project capex, we believe many developers are ripe for acquisition. We are also finding that explorers are continuing to wait for better market conditions before fundraising for 2023 exploration campaigns.
B2Gold is a Vancouver-based gold producer with three operating mines (two in Nicaragua and one in the Philippines), a fourth mine which has entered into the commissioning and testing phase in Namibia and a portfolio of development and exploration assets in Mali, Colombia, Burkina Faso and Nicaragua. Co.'s reportable operating segments include its mining operations and development projects. The Other Mineral Properties segment consists of Co.'s interests in mineral properties which are at various stages of exploration. The Corporate and Other segment includes corporate operations and the Bellavista property in Costa Rica which is classified as held for sale.
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.
Hecla Mining and its subsidiaries discover, acquire and develop mines and other mineral interests and produce and market concentrates, carbon material and dore containing silver, gold, lead and zinc. The company has five units: the Greens Creek, Lucky Friday, Casa Berardi, San Sebastian and Nevada Operations units. The company produces zinc, lead and bulk flotation concentrates at its Greens Creek unit and lead and zinc flotation concentrates at its Lucky Friday unit, each of which the company sells to custom smelters and metal traders on contract. The company also produces unrefined gold and silver bullion bars (dore), loaded carbon and precipitates at its Casa Berardi, San Sebastian and Nevada Operations units.
Kingsmen C.M.T.I. Public Company Limited is a Thailand-based company providing interior design and build services. The Company's principal business segments include interior design segment, exhibition segment, alternative marketing segment, as well as museum and thematic park segment. The Company offers interior solutions covering a full range of services from idea generation, research and design, consultancy, project management and prototyping, fabrication, implementation, installation, logistics support and after-sales services. The Company's subsidiary includes Kingsmen Myanmar Company Limited, providing design, build and interior services for exhibitions, marketing events in Myanmar.
Kinross Gold is engaged in the mining and processing of gold and, as a by-product, silver ore and the exploration for, and the acquisition of, gold bearing properties in the Americas, the Russian Federation, West Africa and worldwide. As of Dec 31 2013, Co.'s proven mineral reserves for gold and silver were 1,122 ounces and 1,179 ounces respectively.7,883 7,883 7,883
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.
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