Industry Report – Metals & Mining Third Quarter 2021 Review and Outlook

Friday, October 1, 2021

Minerals Industry Report

Metals & Mining Third Quarter 2021 Review and Outlook

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

Refer to end of report for Analyst Certification & Disclosures

• Precious metals miners had a rough quarter. During the third quarter, mining companies (as measured by the XME) declined 3.1% compared to a gain of 0.2% for the S&P 500 index. The VanEck Vectors Gold Miners (GDX) and Junior Gold Miners (GDXJ) ETFs were down 13.3% and 18.1%, respectively. Gold, silver, and copper futures prices were down 0.8%, 15.3%, and 4.3%, respectively, while lead and zinc were up 3.6% and 4.8%. Year-to-date through September 30, gold and silver prices declined 7.8% and 16.6%, respectively, while copper, lead, and zinc prices were up 16.4%, 17.8%, and 17.3%. While our last quarterly update predicted range-bound gold and silver prices, we are growing more bullish going into 2022. Moreover, our outlook remains upbeat for industrial metals.
• Growing conviction on precious metals. During the third quarter, the U.S. Dollar Index rose 1.9% and is up 4.8% year-to-date through September 30. The yield on the 10-year rose modestly during the quarter and was up 61 basis points compared to year-end 2020. While a rise in the U.S. dollar and treasury yields are headwinds for gold, it is likely that inflation will remain elevated through 2022, real interest rates will remain low, and investors may begin to focus on rising federal deficit spending and debt levels. Less favorable year-over-year GDP growth comparisons could take momentum out of growth stocks and investors may tilt to value and defensive sectors. We think gold may be viewed more favorably as a store of value and silver could benefit from renewed interest in gold. While we value cryptocurrencies’ utility as a medium of exchange, they have become more of a speculative vehicle whose market values are untethered to intrinsic value.
• Still bullish on base metals. With respect to industrial metals, we remain bullish due to favorable supply and demand fundamentals supported by global economic growth, infrastructure spending, and trends toward electrification, decarbonization, and renewable power technologies.
• Exposure to mining stocks. Investors should remain exposed to precious and base metals through mining stocks. Valuations, particularly among junior companies, remain attractive. Because large, high-quality deposits are becoming increasingly scarce, geopolitical considerations more complex, and lead times for bringing a mine into production longer, M&A activity could accelerate as large mining companies seek to bolster reserves and resources.

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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

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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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