The Weekly Dig - June 8, 2018
Mick Carew, PhD, mcarew@haywood.com
and The Haywood Mining Team
Investors Await Federal Reserve Meeting as Gold Remains Around $1,300 per ounce
Highlights:
Precious Metals: The price of gold continued to hover around the US$1,300 per ounce level this week as investors remained cautious at they waited for the commencement of the G7 Summit, which began today, and next week’s Federal Reserve Policy meeting and U.S.-North Korea summit. After the U.S. administration withdrew exemptions and imposed steel and aluminium tariffs on the EU, Canada and Mexico, relations between the historically staunch allies hit a new low. Tempers frayed further as President Trump sent numerous highly critical twitter messages on Thursday and Friday, singling out Canada and Prime Minister Trudeau. The G7 Summit is expected to be a tense affair, although preliminary photos of the leaders tried to convey a united front. Most of gold bugs’ attention will be towards the Federal Reserve meeting, and indications of further interest rate hikes as economic data out of the U.S. continues to improve. The price of gold finished at US$1,299 per ounce on Friday, while silver, platinum and palladium each finished at US$16.77 (up 2%), US$907 and US$1,014 (up 1%) per ounce, respectively. Both the S&P/TSX Global Gold Index and VanEck Vectors Junior Gold Miners ETF finished flat this week, while the S&P/TSX Venture Index was up 10 points finishing at 775. Some of the better performing gold mining equities included Alamos Gold Inc. (AGI-T, BUY rating, $10.00 target, up 7.5%), SEMAFO Inc. (SMF-T, BUY rating, $5.50 target, up 6.6%) and Oceanagold Corp. (OGC-T, HOLD rating, $4.20 target, up 2.2%) for the producers. Gold explorers didn’t fare so well, with Atlantic Gold Corp (AGB-V, HOLD rating, $1.80 target, up 0.5%) and Lumina Gold Corp. (LUM-V, BUY rating, $1.20 target, up 1.4%) included in the few gold exploration companies registering positive gains this week.
Base Metals: Base metals continued to appreciate with both copper and zinc having strong weeks. LME copper and zinc had the strongest performance this week, up 6.4% and 4.0% WoW respectively, while LME nickel was flat, finishing the week at $6.96/lb. The LMEX Index finished the week up 3.51% WoW at 3,488.8. The S&P Composite Diversified Metals & Mining Industry Index finished the week at 6,822, which was up 5.17% WoW. YoY, metals have had a respectable performance: copper, zinc, and nickel are up 28.4%, 31.7% and 75.3%, respectively. LME inventories were mixed WoW, zinc inventories were up 1.7% WoW, while nickel and copper were down 3.0% and 3.4% WoW, respectively. The US Dollar Index was down 6.5 bps this week finishing at 93.54, having a minimal impact on base metals prices. Copper’s strong WoW performance was driven by supply concerns as workers at the Escondida mine (~900kt of copper production in F2017 or 5% of global supply) entered wage talks with management. In 2017, workers at the Escondida mine were on strike for 43 days resulting in supply disruptions in the copper market. Base metals equities had a strong week on the back of the increase in metals prices. The most positively and negatively impacted weekly performers in our coverage universe were Copper Mountain (CMMC:TSX, BUY, $2.00/sh target) and Hudbay Minerals (HBM:TSX, BUY, $12.50/sh target), which were up 23.6% and 5.2%, respectively.
