The Weekly Dig - April 13, 2018 

Mick Carew, PhD, and 

The Haywood Mining Team 

Volatility in Precious Metal Prices as Concerns Spike Mid-Week Surrounding Syria 


Precious Metals: It’s been a roller-coaster ride for precious metals this week as gold surpassed the US$1,360 mark on Wednesday, before both gold and silver prices took a hit on Thursday, giving up early week gains before finishing (up 0.9% and 1.6% WoW) at US$1,345 and US$16.66 per ounce, respectively. Coinciding with this volatility, tensions in the Middle East escalated as the U.S. threatened to attack Syria for an alleged chemical attack on the weekend, followed by Russia promising to shoot down any U.S. missiles aimed at Syria. In a tweet Wednesday morning President Trump taunted Russia that a strike was imminent, but has since backtracked following discussions with allies on Thursday. It was a relatively positive week for gold equities; SEMAFO (SMF-T, BUY, $5.50 target) rose over 6.5%, while K92 Mining (KNT-V, not rated), Pure Gold (PGM-V, BUY, 1.00 target), and Barkerville (BGM-V, BUY, $1.60 target) rose 37%, 11% and 8% this week, respectively. Platinum (up 1.5%) and palladium (up 8.4%) both had positive weeks. 

Base Metals: Base metals had a mixed week. Copper was up 1.0% WoW following an upbeat CESCO conference in which industry leaders discussed a looming mine supply shortage, pointing to a deficit in 2019. These gains were countered by zinc, which was down 3.9% WoW on a drop in canceled warrants and concerns about growing mine supply. The LMEX Index finished the week up 290 bps at 3,316. The S&P Metals & Mining Select Industry Index finished the week at 1,769, which was up 1.1% WoW. YoY, metals have performed positively: copper, zinc, and nickel are up 20.1%, 19.0% and 43.3%, respectively. LME inventories were all down WoW, led by zinc down -5.2%, followed by copper and nickel, down -3.7% and -1.4% WoW, respectively. Excluding bonded warehouse inventories, we calculate the current days of consumption at 13.1 for copper and 8.5 for zinc. The US Dollar Index was down 37.3 bps last week finishing at 89.772, which had a slight positive impact on base metals prices. This week marked the start of Q1/18 production results, with updates from both Trevali Mining (BUY, C$2.30/sh target, down -5.6% WoW) and Capstone Mining (HOLD, C$1.50/sh target, down -7.2% WoW). Trevali reported production results that were generally in line with expectations, but preliminary costs were above guidance. Production guidance for the year was maintained (full report). Capstone produced 19.2 kt of copper in the quarter, which was down 18% QoQ and 13% below our estimate. While 2018 production guidance was reiterated, if the sale of Minto goes through in mid-2018, as expected, Capstone’s original guidance of 90kt will be adjusted, likely closer to 80kt to account for lost production (full report). 

The Week Ahead: Nevsun Resources (NSU-T, BUY, $4.00 target) analyst day on April 16, Trevali Mining (TV-T, BUY, $2.30 target) analyst day on April 17. 

Click here for the full report