The Weekly Dig - October 12, 2018
Mick Carew, PhD, mcarew@haywood.com
and The Haywood Mining Team
Gold Price Surges amid Continued China/US Trade Concerns
Highlights:
Precious Metals: The price of gold surged on Thursday to its highest price in more than two months after global stock markets led by the U.S. plunged, led by the Dow Jones Industrial Average, which fell almost 1,000 points on Wednesday. Speculation in the media that the continued trade war between China and U.S., combined with negative rhetoric from President Trump over the Federal Reserve’s continued monetary policy to increase interest rates, would eventually take its toll was proven correct. This is despite major indices paring some of the losses endured earlier in the week. Wednesday’s market correction coincided with gold rising to $1,223 per ounce; this follows a lacklustre performance that has seen gold hover around the $1,200 per ounce level since the yellow metal bottomed at $1,170 per ounce in mid August. As expected, gold equities followed gold’s lead, with the S&P Global Gold Index and VanEck Vectors Junior Gold Miners Index both performing well, rising 7% and 5% respectively. Some of the better performing equities for the week included Barrick Gold (ABX-T, BU rating, $15.00 target; up 10%), B2Gold Corp. (BTO-T, BUY rating, $5.00 target; up 8.2%) and Osisko Gold royalties (OR-T, BUY rating, $18.00 target; up 7.5%) for the major producers, while for the junior explorers, Barkerville Gold Mines (BGM-V, BUY rating, $1.60 target; up 14/7%), Sabina Gold and Silver Corp. (SBB-T, Hold rating, $2.35 target; up 11.2%) and Atlantic Gold (AGB-V, HOLD rating, $1.80 target) where amongst the better performers in the space.
Base Metals: Base metals were up week over week. LME copper had the best performance, up +2.5% WoW, while LME zinc and nickel were both flat, up +0.3% WoW. The LMEX Index finished the week relatively flat up +25 bps WoW at 3,005.8. The S&P Composite Diversified Metals & Mining Industry Index finished the week at 5,340, which was down -2.1% WoW. YoY, metals have had a mixed performance: copper and zinc are down -7.9% and -19.9%, respectively while LME nickel is up +10.9% YoY. LME inventories were all down WoW, with copper, zinc, and nickel inventories down -10.8%, -5.4%, and -1.6% WoW, respectively. Base metals prices are all rising on strong trade data out of China. Copper prices were supported after data showed China's unwrought copper imports surged to their highest in 2 ½ years in September, while copper concentrate imports climbed to an all-time high. Zinc inventories in warehouses monitored by the Shanghai Futures Exchange surged 48.5 percent over the past two weeks to 43,373t, data showed on Friday. LME zinc prices, however, seemed to shrug off those potentially bearish signals. Overall, the stocks in our coverage universe were mixed this week. The most positively and negatively impacted weekly performers in our coverage universe were Hudbay Minerals (HBM-T, BUY, C$9.00 target) and Capstone Mining (CS-T, HOLD, C$1.20 target), which were up +2.4% and down -11.3%, respectively.
