There were a few interesting pieces of news in the mining space this week, one of which was certainly CITIC Metals, a Chinese state-owned enterprise that is the largest conglomerate in the country and one of the world’s biggest buyers of metals, investing $723 million in Ivanhoe Mines (TSX: IVN) to take a 19.9% stake in the company.
The financing really strengthens Ivanhoe, which needed a substantial cash injection to continue advancing its three incredible but huge and expensive projects: the Kamoa-Kakula and Kipushi projects in Democratic Republic of Congo (DRC) and the Platreef platinum project in South Africa.
Another Chinese group, Zijin Mining, already owns 9.9% of IVN; if Zijin wants to use its anti-dilution right to maintain its stake, it would have to cough up $78 million.
CITIC’s investment says the Chinese, at least, are confident that the DRC is a functional place to operate. That’s a significant vote of confidence, especially since the DRC just signed a new mining code that increases royalties, introduces a super profits tax, and removes a 10-year amnesty for existing miners on the new rules. Miners in the DRC have been pushing back against the new code collectively
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It’s been a while since I’ve written about uranium, but I continue to be a shareholder in Uranium Energy (NYSE: UEC) and NexGen Energy (TSX: NXE). Like other key resources, the idea that there is not enough uranium ready to meet demand in the long-term remains in play. However, I am careful here as being early is the same as being wrong. I haven’t yet seen enough signs of life to bring me back to uranium, but that’s starting to change.
In a Uranium Sector Update from May 8, 2018, Haywood analysts wrote that this is “the best fundamental position we have seen since pre-Fukushima”. The demand side is looking good as the global reactor pipeline is “now exceeding the pre-Fukushima level” and the supply side finally looks like it is figuring out how to squeeze a rally out of the spot market, with prices now rising for the third time in a year.
We haven’t seen a significant lift in uranium term prices yet, but it may be coming.
Uranium was notoriously over-supplied following the Fukushima disaster in 2011. That oversupply combined with extremely negative sentiment towards the sector to decimate prices over the next six years.…
I can’t help but share a few of the key conclusions from two big recent copper outlook reports. One, from the Bank of Montreal, assessed the state of supply and demand. The other, from CitiBank, looked at 18 major copper miners in terms of free cash flow and what they might do with their money.
The reports agreed on the big picture: the copper market is heading towards a serious deficit. This is a market that churns through some 21 million tonnes of metal annually…and from 2025 to 2030 it will be short 5 million tonnes of copper annually. Five million tonnes! That’s 10 billion pounds and a quarter of the entire market. It is a staggering deficit and one that will require immense buildout to meet.
Enter the Citi report. One conclusion: assuming the need for a 15% internal rate of return (after accounting for country risk), Citi sees the need for copper prices of at least US$3.60 per lb. to incentivize the greenfield development necessary to close the supply gap. OK, so there is strong fundamental support for copper prices to continue rising. On the flip side, prices are already up 24% in a year
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EMX Royalty made an interesting, unexpected, and somewhat telling move this week, announcing a US$5 million senior secured one-year credit facility with Sprott Resource Lending (C$6.25 million). It is not cheap money: the loan carries 12% interest rate payable monthly (US$50,000 per month) and EMX paid Sprott US$100,000 for the facility up front.
Seeing the news immediately raises a few questions. First, didn’t EMX raise $7 million a year ago, its first raise in eight years and an amount that, alongside its royalty and project payment cash flow, was supposed to carry it for a long time? Second, isn’t EMX supposed to reach cash flow positive this year; if so, why does it need a credit facility? And third, if it does need money why get it through a high-interest one-year loan?
The answers to all of these questions sit with IG Copper and the Malmyzh project. EMX did raise $7 million last year but it immediately put more than half of those dollars into IG Copper. The investment did two things: it slightly increased EMX’s ownership of IG Copper from 39% to 42% and it provided IG with needed funds for its portion of project costs.
Malmyzh is
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Gold stocks have been outperforming gold of late. The differences are not immense, but it is still very nice to see evidence that investors see opportunity in gold miners.
Those gold miners have been releasing Q1 results over the last two weeks. It’s impossible to summarize such a range of numbers but what I can say is that attuned investors are rewarding significant positive accomplishments, punishing failures, and leaving everything else pretty much alone.
Here are three examples.
Kirkland Lake Gold (TSX: KL) has one of the best share price charts out there for a producing gold miner. The company’s Q1 results continued its two-year upward trend with earnings that beat estimates, a rising grade profile based on new discoveries at operating mines, a significant increase in cash reserves, all-in sustaining costs lower than predicted, and an increased cash dividend.
Really, things couldn’t have been any better. Of course, those paying attention knew things were going well, which is why KL shares have been gaining sustainably for so long.
By contrast, investors slammed Detour Gold (TSX: DGC) on its Q1 report. The company beat expectations for earnings but cut expectations for the future with
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The most important takeaways from PDAC for me are my new investment ideas.
But alongside the stock picks, people always ask about sentiment and conversation. So here’s what I thought this year.
I used a phrase two years ago to describe how juniors in the mining space were faring: the Haves and the Have Nots. When the new gold market started in 2016 the rising tide lifted all boats, but before that year ended the fleet divided into a small group riding above the waves and a much larger group struggling to stay afloat.
Haves are the companies with access to capital. That access usually stems from a combination of proven management (with previous wins and therefore loyal shareholders), strong projects, and good jurisdictions.
I could fill pages with more detail on each of those points – and the details matter. For instance, projects need not only be strong but must also be at an attractive stage, which usually means recent discovery or near/new production. Anything in between, from growing a known resource to (heaven forbid) planning and permitting a mine, has gotten no love.
Moreover, the fact that available investment capital has been very limited in the
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Gold was already making nice headway, rising from US$1,280 per oz. on January 24 to get above US$1,300 by January 30…and then Federal Reserve Chairman Jerome Powell poured fuel on the fire.
The Fed left rates on hold, which was totally expected. Having hiked in December, there was almost no chance the Fed was going to hike again. But while the immediate rates decision wasn’t newsworthy, Powell made waves by saying that the Fed would be “flexible” on rates going forward.
The market immediately – and I think rightfully – took that to mean that rate hikes are done until further notice. Then in the post meeting Q&A session Powell gave even more reason to believe the Fed has shifted from tightening to loosening when he said his group was looking at the current rate of balance sheet reduction and would alter the path if ongoing economic conditions necessitated a “looser monetary position that changes in the Federal Fund Rate could achieve on its own.”
Let me take a moment to explain that jargon.
The Fed was hiking rates partly because economic conditions were strong enough to warrant higher rates, but also because nothing good lasts
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Gold has been grabbing headlines over the last month, and for good reason.
That’s a nice chart, especially compared to the broad markets over the same time frame.
Gold is up about 10% from the lows printed in August. It has broken up through several technical levels. The next barrier is psychological: to get past $1300.
The yellow metal is garnering attention for four reasons. One: people are increasingly concerned about growth, about whether this economic expansion still has legs. Two: the stock market tanked in late 2018 so investors are worried the epic bull market is ending. Three: the US dollar is staying sideways, rather than continuing to climb. And four: real rates remain very low and have stopped rising.
In short, gold is settling nicely into its classic role as a safe haven.
These are big picture forces, which is why a broad base of investors are now turning towards gold.
And this setup is likely to remain in place for the next while because none of those four forces are likely to change soon.
It’s unlikely investors are going to get more confident about growth in the near term. China is the single
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Two big things happened on Tuesday. The first big thing: US markets fell significantly. The Dow Jones Industrial Average fell 700 points or 3%, the NASDAQ lost almost 4%, the S&P somewhere near 3%. The sharp downturn followed a strong rally on Monday fueled by optimism that Trump and Xi had agreed to a 90-day stand down in the two nations escalating trade dispute.
But the devil, as always, is in the details. And while everything about this trade war has been short on details, the two countries issued very different statements following the meeting – so the details we did get didn’t match up.
As the scale of the differences set in, Monday’s market optimism turned to skepticism on Tuesday that Beijing would yield to US demands any time soon. And fair enough. There are major issues that cannot be resolved, whether over a leaders’ dinner or within 90 days, including but not limited to intellectual property rights, Beijing’s subsidies to strategic industries, and Taiwan.
The lack of agreement was a stark reminder of how complicated and uncertain this trade war really is, and that got investors anxious. And so the
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Mexico’s new president, Manual Lopez Obrador (AMLO), hasn’t taken office yet but his administration is already making waves.
First he mothballed the under-construction new airport for Mexico City, a massive infrastructure project that many of the country’s biggest companies were working on. Next he proposed a bill to change how banks can charge clients, to target the fee gouging that is rampant in Mexico. Immediately, Mexican banks collectively lost billions in market value.
I’m writing about AMLO because his party is also taking aim at the mining sector. A new bill before the senate would make significant changes to Mexico’s mining laws, including allowing the Energy Secretary to declare certain areas off limits for social or environmental reasons and requiring consent from indigenous communities before mining concessions are granted on their lands.
Indigenous consent is supposed to be required already, as the Mexican government signed an International Labor Organization agreement 30 years ago committing to consulting indigenous populations on projects that could impact them. But in reality Mexico has only applied that 5 requirement to energy projects…and even with those the government has turned a blind eye to companies exerting extreme pressure on local populations to agree.
AMLO’s government
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