Monday, January 4, 2021

Minerals Industry Report

Metals & Mining Fourth Quarter 2020 Review and Outlook

Mark Reichman, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to end of report for Analyst Certification & Disclosures

• Mining companies outperformed the broader market. During the fourth quarter of 2020, mining companies (as measured by the XME) gained 43.9% compared to 11.7% for the broader market as measured by the S&P 500 index. The VanEck Vectors Gold Miners (GDX) and Junior Gold Miners (GDXJ) ETFs were down 8.0% and 2.0%, respectively. During the fourth quarter, gold futures prices were flat, while silver and palladium futures prices increased 12.4% and 5.6%, respectively. Copper, zinc, and lead futures prices were up 16.0%, 2.5%, and 8.9%, respectively. While it was perhaps a tougher quarter for gold stocks, the GDX and GDXJ were up 23.0% and 28.3% in 2020 with gold and silver prices gaining 22.2% and 46.0%, respectively. We expect strong fourth quarter 2020 financial results among metals producers.
• Outlook for precious metals remains constructive. While gold prices benefited in 2020 from investors looking for safety in times of uncertainty; a COVID vaccine, greater clarity with respect to a new Presidential administration, and an expected economic recovery in 2021 tilted the market towards greater risk. With continued low interest rates, an expanding money supply, increasing U.S. debt and a growing federal deficit, we think gold prices will continue to be supported by its appeal as a store of value and hedge against a weaker dollar and inflation. Potential headwinds include a tapering of monetary or fiscal policies and the potential for longer-term interest rates to rise. While cryptocurrencies have emerged as a speculative vehicle of choice for some, they do not have gold’s history as a monetary metal and store of value.
• Base metals respond to an improving economic outlook. With economic activity expected to rebound in 2021, base metals price have begun to reflect higher demand expectations. Copper, lead, and zinc prices were all up in the fourth quarter, led by copper and zinc prices which were up 25.0% and 19.7%, respectively in 2020. Secular trends associated with a transition to a greener economy, including more electric vehicles and a push toward electrification have elevated investor attention to longer-term supply and demand fundamentals for metals such as copper.
• Mining equities provide leverage to commodity price strength. In our view, the environment remains constructive for both precious and base metals although the recovery in precious metals prices has been longer in the making and the outcome of the Georgia Senate race may influence the trajectory and magnitude of stimulative policies. We still think it is early in the game for investors to gain exposure to mining companies given their leverage to commodity prices and our favorable outlook for earnings and cash flow growth.

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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE

Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis.
Named WSJ ‘Best on the Street’ Analyst and Forbes/StarMine’s “Best Brokerage Analyst.”
FINRA licenses 7, 24, 63, 87

WARNING

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RESEARCH ANALYST CERTIFICATION

Independence Of View
All views expressed in this report accurately reflect my personal views about the subject securities or issuers.

Receipt of Compensation
No part of my compensation was, is, or will be directly or indirectly related to any specific recommendations or views expressed in the public appearance and/or research report.

Ownership and Material Conflicts of Interest
Neither I nor anybody in my household has a financial interest in the securities of the subject company or any other company mentioned in this report.

NOTE: On August 20, 2018, Noble Capital Markets, Inc. changed the terminology of its ratings (as shown above) from “Buy” to “Outperform”, from “Hold” to “Market Perform” and from “Sell” to “Underperform.” The percentage relationships, as compared to current price (definitions), have remained the same. Additional information is available upon request. Any recipient of this report that wishes further information regarding the subject company or the disclosure information mentioned herein, should contact Noble Capital Markets, Inc. by mail or phone.

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