Precious Metals

The signed mega-merger between gold mining houses Newmont (NEM-US) and Goldcorp (G-T), along with a gold price that continues to edge closer to the psychological US$1,300 per ounce level, has provided some cause for optimism as conference season in Vancouver approaches. The Cambridge House Resource Investment Conference kicks off on Sunday, followed by the more academically focused Roundup Mining Conference commencing one week later on January 28th. Although the price of gold has lost some momentum since the beginning of January, a more dovish tone from the U.S. Federal Reserve of late could see gold pierce the US$1,300 per ounce level; while gold has enjoyed a positive run since mid-November, this upward momentum has not translated to gold mining and exploration equities to the same degree as some investors would have expected. Since the beginning of January, both the S&P/TSX Global Gold Index and Van Eck Vectors Junior mining Index ETF have lost ground after solid performances in late 2018. Meanwhile, following a late year rise after a horrid 2018, the S&P/TSX Venture Index has also lost momentum this week, registering a modest weekly decline for the first time since mid-December. As such, the overall mood at next week’s Cambridge conference will be monitored closely by investors as uncertainty continues to dominate the mining sector. Meanwhile, the week saw a number of positive performers from our coverage universe; amongst the gold producers, Alamos Gold (AGI-T, BUY rating, $9.00 target, up 7%) and Detour Gold (DGC-T, BUY rating, 15.50 target; up 2%) were amongst the better performers, while Marathon Gold (MOZ-T, BUY rating, $1.80 target), Sabina Gold and Silver (SBB-T, HOLD rating, $2.35 target), Pure Gold (PGM-V, BUY rating, $1.00 target) and Barkerville Gold Mines (BGM-V, BUY rating, $1.25 target) each rose 9%, 8%, 6% and 6% respectively.

Base Metals

The base metals were all up week over week (WoW) as of Thursday’s close. LME zinc was the most positively impacted metal up +3.2% to $1.16/lb followed by nickel, which was up 3.1% WoW at $5.24/lb. LME copper was up +1.0% to $2.71/lb WoW. The LMEX Index was up 1.14% WoW at 2,842.0 at Thursday’s close. The S&P Composite Diversified Metals & Mining Industry Index closed Thursday at 5,267.53, which was up 76bps WoW. Metals are all down YoY with copper, zinc and nickel down -14.7%, -25.1% and -6.5% respectively. LME inventories were mostly down WoW with zinc and nickel inventories down -3.3% and -0.9% WoW respectively. Copper was up 1.0%. Excluding bonded warehouse inventories, we calculate the current days of consumption at 5.0 for copper and 4.2 for zinc. The US Dollar Index was up 56bps this week, closing on Thursday at 96.077 having little impact on base metals prices. The base metals equities in our coverage were mostly up WoW. The most positively impacted weekly performer in our coverage universe was Nevada Copper Corp (NCU: TSX, BUY, $0.90/sh target), up 6.7% WoW. The most negatively impacted weekly performer in our coverage universe was Trevali Mining Corp (TV: TSX, BUY, $1.00/sh target), which was down -19.5% WoW on Thursday.

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