HIGHLIGHTS

Precious Metals

As expectations rose that the U.S. Federal Reserve would keep its key interest rate steady after a succession of raises in 2018, the price of gold has been on a steady incline since Friday, surging through the $1,300 per ounce level for the first time since June 2018. After the Federal Reserve confirmed that it would keep interest rates steady, the gold price continued its upward trajectory on Wednesday and Thursday, reaching a high of $1,326 per ounce on Thursday before settling at $1,321 per ounce at yesterday’s market close. This created some much needed enthusiasm at this past week’s Round-Up conference in Vancouver, particularly from junior mining companies who, for much of 2018, have struggled as illustrated by the performance of the TSX/S&P Venture Index which fell 35% from January to December. However, it was the gold producers and, to a lesser extent, advanced stage explorers and developers that appeared to respond accordingly, with both the S&P/TSX Global Gold Index and Van Eck Vectors Junior mining Index ETF up 7%, while the TSX Venture rose a more modest 3% since last week. Some of the better performers amongst the gold producers include Eldorado Gold Corp. (ELD-T, BUY rating, $7.00 target; up 37.4%), Alamos Gold (AGI-T, BUY rating, $10.00 target) and Barrick Gold Corp. (ABX-T, BUY rating, $18.00 target), while Goldquest Mining Corp. (GQC-V, SELL rating, $0.08 target; up 22%), Liberty Gold Corp. (LGD-T, BUY rating, up 20%) and Troilus Gold Corp. (TLG-T, BUY rating, $2.00 target; up 12%) where three of the better performing exploration companies this week. With gold up 3% since last Thursday, the other precious metals followed suit, with silver (up 3%), platinum (up 2%) and palladium (up 1.5%) each finishing at $16.07, $821 and $1,344 per ounce respectively.

Base Metals

In the continuing development of the US-China trade war, the two countries began a round of high-level talks on Wednesday to reach a resolution against the tight deadline of March 2nd, when the U.S. plans to increase tariffs on Chinese goods. To appease the U.S. government, China is fast-tracking its new foreign investment law that outlaws intellectual property theft, a sticking point in the U.S.-China dispute. Expectations are tempered, as the Chinese government will need to follow through on its pledges, but the markets are hopeful: Xi Jinping is concerned that the trade war will accelerate China’s economic slowdown. Metals prices have been reflective of the sentiment, advancing this week with copper, zinc, and nickel up 4.4%, 3.1% and 6.0% percent respectively. Nickel prices have also rallied in the face of a dam breach at Vale, which supplies 9% of the world’s refined nickel. However, according to Wood Mackenzie, the catalyst-driven rally is likely to be short-lived given that there is no fundamental reason for a disruption at the iron ore mine to strain nickel supply. Week over week, LME nickel inventory is down -0.5% while zinc and copper inventories are down -3.4% and up 2.4% respectively. Excluding bonded warehouse inventories, we calculate the current days of consumption at 5.4 for copper and 4.2 for zinc. Metals prices have also been helped by the weaker U.S. Dollar Index this week, which was down -1.06% to 95.579. Accordingly, the LMEX Index is up 3.09% to 2,948 and the S&P Composite Diversified Metals & Mining Industry Index is up 8.62% to 5,581.52. The equities in our coverage universe were mostly up this week with the best performer being Lundin Mining Corp (LUN-T, BUY rating, $8.00 target), which gained 8.9%. The worst performer in our coverage universe was Capstone Mining Corp, (CS-T, BUY rating, $0.85 target), which was down -3.3%.

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