The Weekly Dig - May 18, 2018

Mick Carew, PhD, mcarew@haywood.com

and The Haywood Mining Team

Headwinds Continue as Gold Price Falls Below $1,300 per Ounce

Highlights:

Precious Metals: The price of gold slumped to a 2018 low this week as both the U.S. dollar index and oil prices continued to rise. The US dollar’s rise has come despite continued geopolitical concerns in the middle east and the ongoing threat of a trade war between the U.S. and China. Instead, positive U.S. economic data has fueled the view that the Federal Reserve will adopt an aggressive pace of rate increases, with speculation that three may be announced before the end of the year. The result of a recent Italian election that has seen two of its larger populist parties form a coalition and the potential for increased tensions between the eurozone and U.S. has also helped support the dollar. After hitting a low of US$1,285 on Thursday, the price of gold recovered slightly on Friday to finish the week 2% lower at US$1,292 per ounce. Predictably, gold equities suffered at the hands of a falling gold price; the S&P/TSX Global Gold Index fell 3 points this week while the VanEck Vectors Junior Gold Miners ETF performed slightly better, losing half a point only for the week. Eldorado Gold Corp. (ELD-T, BUY rating, $2.50 target) was one of the few larger cap companies to register a positive return for the week (up 6%) while Falco Resources (FPC-V, BUY rating, $2.00 target; up 10%) and Sabina Gold and Silver Corp. (SBB-T, HOLD rating, $2.35 target; up 2%) were two of the better performing Junior mining/exploration equities for the week. The other major precious metals, silver, platinum and palladium, also endured a negative week, down 1.5%, 4.2% and 2.5% respectively.

Base Metals: Base metals were mixed WoW with LME nickel having the strongest performance up 5.0% WoW, followed by LME zinc up 1.1% and LME copper was down 1.2% WoW. The LMEX Index finished the week down 40 bps at 3,331. The S&P Composite Diversified Metals & Mining Industry Index finished the week at 6,708, which was up 175 bps WoW. YoY, metals have had a respectable performance: copper, zinc, and nickel are up 22.7%, 23.0% and 60.8%, respectively. LME inventories were also mixed WoW, with copper up 7.3%, while zinc and nickel were down 1.2% and 1.9%, WoW respectively. Nickel stockpiles in Shanghai Futures Exchange warehouses were at two and a half year lows this week. Excluding bonded warehouse inventories, we calculate the current days of consumption at 12.4 for copper and 8.5 for zinc. The US Dollar Index was up 120 bps this week finishing at 93.65, which had a slight negative impact on base metals prices. Driven by an expected increase in demand for battery-related metals, the LME is working on rolling out new battery-related metals contracts in the form of cash-settled cobalt and lithium products. LME representatives have met with automakers, battery manufacturers, and miners to discuss the creation of such contracts. The most positively and negatively impacted weekly performers in our coverage universe were Lundin Mining (LUN:TSX, HOLD, C$9.50/sh target) and Copper Mountain (CMMC:TSX, BUY, $2.00/sh target), down -0.5% and down -5.0%, respectively.

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All prices are in C$ unless noted

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Analyst Certification

We, Mick Carew, Geordie Mark, Colin Healey, Pierre Vaillancourt, and Kerry Smith, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.

Important Disclosures

Of the companies included in the report the following Important Disclosures apply:

n/a

Other material conflict of interest of the research analyst of which the research analyst or member knows or has reason to know at the time of publication or at the time of public appearance:

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Distribution of Ratings (as of May 18, 2018)

IB Clients

%

#

(TTM)

Buy

74.5%

70

92.0%

Hold

13.8%

13

4.0%

Sell

1.1%

1

0.0%

Tender

1.1%

1

4.0%

UR (Buy)

0.0%

0

0.0%

UR (Hold)

0.0%

0

0.0%

UR (Sell)

0.0%

0

0.0%

Dropped (TTM)

9.6%

9

0.0%

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