The Weekly Dig - Feb 9, 2018

by Mick Carew, PhD,, Emma Boggio, MSC, CPA and CA, and The Haywood Mining Team

Mining Stocks Under Pressure Following Global Equity Markets Sell-Off


Precious Metals: Last week’s heavy selling of precious metals continued throughout the week following last Friday’s positive U.S. jobs report as the anticipation of further interest rate hikes and inflationary concerns saw global markets tumble. The S&P500 Index fell almost 100 points on Monday and over 100 points on Thursday as market volatility skyrocketed, with the VIX rising almost 20 points on Monday. Closer to home, the S&P/TSX Composite Index fell almost 500 points during the week. Gold and silver prices fell 1.3% and 1.4% this week, finishing at US$1,316 and US$16.36 on Friday, while the price of palladium maintained its lead over platinum despite falling 7.3% this week. 

Weekly Performance: Meanwhile, as expected, it was a tough week for gold mining equities with SEMAFO (SMF-T; BUY, $4.50 Target) and Pretium Resources (PVG-T, not rated) two of the few mining stocks to register positive returns this week. On the junior exploration/development front, positive performers included Sarama Resources (SWA-V) and K92 Mining (KNT-V), with both 11% and 8% higher on Friday. 

Base Metals: Base metals were down week over week, LME copper was the most negatively impacted metal, down 4.2%, followed by zinc and copper, down 3.9% and 3.5%, respectfully. The LMEX Index finished the week down 4% at 3270.7. Year over year, copper, zinc and nickel are up 15.5%, 20.5% and 26.4%, respectively. LME inventories for copper were up 10.5% WoW (+ 14% on Thursday), while zinc and nickel were down at -5.4% and -3.2%, respectively. Excluding bonded warehouse inventories, we calculate the current days of consumption at 11.0 for copper and 6.5 for zinc. Copper pricing was negatively impacted by the increase in copper inventories WoW and the global sell-off of equities. The sequential decline in copper pricing marks the longest run of losses since October, however, analysts expect the weakness in the copper market to be short lived as the potential for supply disruptions remains high. Labour discussions are expected within the next 3 months at Los Pelambres and Chuquicamata which has the potential to impact over 6m tons of copper supply.. 

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