Metals & Mining First Quarter 2022 Review and Outlook

Monday, April 4, 2022

Metals & Mining Industry Report

Metals & Mining First Quarter 2022 Review and Outlook

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

Refer to end of report for Analyst Certification & Disclosures

• Mining companies outperform broader market. During the first quarter, mining companies (as measured by the XME) appreciated 36.9% compared to a loss of 4.9% for the S&P 500 index. The VanEck Vectors Gold Miners (GDX) and Junior Gold Miners (GDXJ) ETFs were up 19.7% and 11.8%, respectively. Gold, silver, copper, and zinc futures prices rose 6.5%, 7.5%, 6.7%, and 20.9%, respectively, while lead was down 0.3%. The war in Ukraine has constrained supplies of commodities, everything from fertilizer, grain, oil, natural gas, and metals, and magnified inflationary trends. How long this will continue is uncertain.

• Outlook for precious metals. The U.S. Dollar Index rose 2.4% during the first quarter, while the yield on a 10-year treasury note rose to 2.33% from 1.51% at year-end 2020. With the U.S. Federal Reserve signaling more aggressive action to combat inflation, further gains for gold may be challenged for the remainder of the year in the face of higher rates and a stronger dollar. However, with consumer and core inflation at 7.9% and 6.4% through February, respectively, real interest rates remain negative and enhance gold’s appeal as a store of value. Moreover, precious metals may be viewed as insurance against expected market volatility and economic uncertainty.

• Risk of slowing economic growth may impact industrial metals. With the Federal Reserve behind the curve on inflation and an unanticipated war stressing commodity markets, choking back demand and growth may be an obvious choice to combat inflation and supply shortages. A key worry is the risk of recession in the U.S. and abroad versus a softer landing. However, improving supply chains, inventory re-stocking, and greater capital spending could be supportive of pricing, and we believe the long-term investment case for owning industrial metals mining companies remains favorable. However, industrial metals may also be challenged to post further gains into the latter part of the year.

• Putting it all together. While much uncertainty remains, including the trajectory of the war in Ukraine, the U.S. Federal Reserve will likely achieve its goal of tamping down inflation. Despite a cautious near-term outlook, precious and industrial metals prices could hold up relatively well despite near-term headwinds. As a means of portfolio diversification, exposure to the mining sector is beneficial and investors may want to consider junior mining companies due to more attractive valuations relative to larger cap peers and the potential for increased M&A and industry consolidation.

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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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