Member of the Canadian Investor Protection Fund
The Weekly Dig - August 17, 2018
Mick Carew, PhD, mcarew@haywood.com
and The Haywood Mining Team
Metal Prices Plunge further as Gold falls Below $1,200 per Ounce
Highlights:
Precious Metals: The week started on an ominous note as the price of gold fell below the US$1,200 level for the first time in over 18 months, experiencing its biggest weekly fall in 18 months as the U.S. dollar continued to rise relative to other global currencies. The U.S. Dollar Index rose to 96.7 on Thursday before pulling back slightly on Friday. Ongoing concerns over U.S. and Chinese tariffs, and the imposition of sanction on Turkey saw investors continue to buy U.S. dollars, while gold suffered as a safe-haven asset. As expected, the plunging gold price, plus its fall below the psychological US$1,200 level was bad news for gold mining and exploration equities. Heavy losses were realized for a number of key indices; the S&P/TSX Global Gold Mining Index fell 15 points this week, while the VanEck Vectors Junior Mining Index lost almost 3 points, approximately 10%. Given the scale of the pullback, there were few positive performers for the week, with both Lundin Gold Inc. (LUG-T, BUY rating, $7.75 target; up 1.5%) and Lumina Gold Corp. (LUM-T, BUY rating, $1.20 target; up 1.3%) two notable exceptions. The price of gold finished at US$1,185 per ounce on Friday, while silver (down 3.3%) and platinum (down 4.6%) also finished lower, finishing at US$14.80 per ounce and US$790 per ounce respectively. Palladium rose slightly (up 0.1%) to finish at US$911 per ounce.
Base Metals: Base metals were all down this week, as the trade war and concerns over emerging market demand continue to negatively impact the metals. LME zinc was the most negatively impacted metal, down -6.3% WoW, which mark the worst weekly loss since 2016 for zinc followed by LME copper and LME nickel, down -4.4% and -2.5% WoW, respectively. The LMEX Index finished the week down -4.3% WoW at 2,877.9. The S&P Composite Diversified Metals & Mining Industry Index finished the week at 5,260, which was down -7.5% WoW. YoY, metals have had a mixed performance: copper and zinc are down -8.8% and -21.7%, respectively while LME nickel is up 25.5% YoY. LME inventories were mixed WoW, with copper and zinc inventories up +2.1% and +8.9% WoW, respectively while LME nickel inventories were down -1.2% WoW. The US Dollar Index was up 16 bps this week finishing at 96.2, having a minimal impact on base metals prices. Base metals equities were all negatively impacted by the metals prices. The most negatively impacted weekly performers in our coverage universe were Capstone Mining (CS:TSX, HOLD, C$1.20/sh target) and Hudbay Minerals (HBM:TSX, BUY, C$9.00/sh target), which were down -18.2% and -10.0% WoW, respectively.
Week Ahead: Superior Gold Inc. (SGI:TSXV, BUY, C$2.00/sh target) is expected to report Tuesday before market open followed by a conference call at 10AM ET (webcast). We’re looking for EPS and CFPS of $0.02 and $0.07, respectively compared to consensus estimates of $0.03 and $0.08, respectively.
