The gold mining industry saw an intriguing deal announced this week, with mid-tier producer Alamos Gold Inc. unveiling plans to acquire smaller rival Argonaut Gold Inc. for US$325 million. The transaction highlights an ongoing trend of consolidation in the metals mining space, as bigger players look to grow through acquisitions of promising assets and companies.
For Alamos, the main prize in this deal is the Magino development project in Ontario, Canada owned by Argonaut. Located right next door to Alamos’ Island Gold mine, Magino provides the company an opportunity to combine the two operations into one large, low-cost complex. Alamos expects to realize over US$500 million in synergies by integrating the two adjacent mines.
The acquisition of Magino significantly increases Alamos’ production profile. The combined company is expected to produce over 600,000 ounces of gold annually in the near-term, with longer-term potential exceeding 900,000 ounces per year at declining costs. This expanded scale bolsters Alamos’ position as one of Canada’s largest and lowest cost gold producers.
While Alamos gains Magino through this transaction, Argonaut’s other assets in the U.S. and Mexico will be spun out into a newly created company called SpinCo that will be owned by Argonaut’s current shareholders. This includes the operating Florida Canyon mine in Nevada as well as several development and exploration projects in Mexico.
The Alamos-Argonaut deal follows a number of similar acquisitions of smaller gold companies by more established miners over the past year. In 2023, Agnico Eagle Mines acquired Teck Resources’ minority stake in the Minas de San Nicolas mine in Mexico, while Kinross Gold acquired Great Bear Resources and its promising Dixie project in Ontario. Going back to 2022, there were several billion-dollar M&A transactions, including Newmont’s acquisition of Newcrest’s stake in the Cadia mine and Yamana Gold’s takeover by the Pan American Silver and Agnico Eagle joint venture.
According to analysts, this renewed appetite for M&A activity reflects a growing consensus that a new bull cycle may be emerging for precious metals like gold and silver. Record high inflation rates, continued economic uncertainty, and a lack of major new production sources coming online have contributed to this increasingly bullish outlook.
In addition to building out their growth profiles through M&A, the large miners are also investing heavily in exploration and advancing their existing development projects. This dual strategy of acquisitions and organic growth initiatives should help drive a new phase of production growth across the sector in the coming years as a potential bull market unfolds.
For smaller mining companies like Argonaut, deals like this provide an attractive exit opportunity and way to unlock value for shareholders. But they also highlight the continual restructuring happening in the mining space, as promising assets and companies get consolidated into the hands of more well-capitalized mid-tier and senior producers.
With metals prices expected to keep rising on the back of supply/demand imbalances, this wave of consolidation could be just the beginning. Analysts anticipate an acceleration of M&A activity as the big miners look to position themselves for the next bullish upswing in the commodity cycle.
The price of gold has skyrocketed to unprecedented levels, smashing through its previous record highs as financial markets grapple with elevated uncertainty and economic turmoil worldwide. The precious yellow metal surged past $2,200 per ounce in March 2024, with many analysts forecasting prices could potentially reach $2,300 by year’s end.
Central Bank Buying Fuels Demand Surge
A major driver behind gold’s stellar rally has been the concentrated buying from the world’s central banks. Motivated by a desire to diversify reserves and hedge against financial instability, national banks have been steadily accumulating gold over the past few years. Their purchases hit an all-time high of 1,136 tons in 2023.
Leading the pack is China’s central bank, which added 62 tons to its reserves in just the first two months of 2024 alone. This buying spree represents China’s ongoing efforts to reduce exposure to the U.S. dollar amid simmering trade tensions and economic competition between the superpowers.
But China is far from the only central bank betting big on bullion. Poland’s central bank emerged as a surprise major buyer in 2023, snapping up 130 metric tons of gold as it moved to bolster its financial security buffers in the wake of the Russia-Ukraine conflict. Singapore’s monetary authority also purchased 76.5 tons last year.
Rampant Inflation Stokes Safe Haven Demand
In addition to central bank accumulation, surging consumer demand has provided another powerful upward force on gold prices across multiple major markets. Galloping inflation in many economies has amplified the yellow metal’s appeal as a store of value and hedge against currency debasement.
In Turkey, where annual inflation topped a staggering 67% in February, demand for gold jewelry and investment bullion nearly doubled in 2023 versus the prior year. With the Turkish lira plunging over 40% against the U.S. dollar, local investors piled into gold to preserve their savings from being eroded by the currency’s depreciation.
Even in relatively lower inflation environments like India, retail investment updates for gold bars, coins and jewelry have remained robust. India’s gold bar and coin demand increased 7% year-over-year, buoyed by households seeking a safe haven asset amid economic uncertainty.
China Overtakes India as Top Jewelry Consumer
China has now surpassed India as the world’s largest gold jewelry consumer market. Chinese demand for gold jewelry amounted to 603 tons in 2023, a 10% annual increase, as retail investors diversified away from underperforming asset classes like real estate and sought refuge in the perceived safety of gold.
India remains a gold jewelry powerhouse as well. Though higher prices moderated some discretionary jewelry purchases, India’s enduring cultural tradition of giving gold gifts during weddings kept consumer demand elevated. India’s gold jewelry consumption totaled 562 tons in 2023.
Economic Outlook Boosts Appeal of Non-Yielding Bullion
Looking ahead, the outlook for even higher gold prices appears increasingly supported by expectations of potential interest rate cuts amid growing fears of an economic slowdown or recession. Lower rates diminish the opportunity cost of holding non-yielding bullion versus interest-bearing assets like bonds.
Major financial institutions like the World Bank and IMF have slashed economic growth projections for 2024, citing persistent inflation, elevated borrowing costs, and supply chain disruptions. This gloomy backdrop heightens the perceived risk of central banks easing monetary policy, which could catalyze another leg higher in gold’s explosive price rally.
With its dual status as an inflation hedge and safe haven asset, gold has reclaimed its luster amidst the storm clouds gathering over the global economic horizon. As long as uncertainty and currency debasement risks persist, the precious metal’s stellar ascent may be far from over.
The mining sector has experienced boom and bust cycles throughout history, but current trends suggest we may be entering a new era of growth and opportunity. With the world transitioning to clean energy and electric vehicles, demand is surging for key minerals like lithium, cobalt, nickel and copper. This creates an attractive investment case for the mining sector.
Historic Trends
Looking back, the mining industry has gone through periods of rapid expansion and painful contraction. During economic expansions and commodity bull markets, mining companies ramp up exploration, development and production to capitalize on high prices. This leads to oversupply and when demand eventually weakens, the cycle turns downward.
We saw this play out in dramatic fashion over the past decade. High prices in the 2000s encouraged massive investment in new mines and supply capacity. But when Chinese growth began to slow around 2012, demand weakened and prices collapsed. The mining sector was forced to drastically cut back on production and capital investment.
Many mining companies barely stayed afloat during this bust period. But this reduction in supply helped set the stage for the next upcycle. Now, after years of underinvestment, mines are depleting reserves faster than they are being replenished. With commodity demand picking up again, conditions are ripe for the next mining boom.
Current Market Trends
Several key trends suggest we are now in the early stages of a new mining upcycle:
Electric vehicle revolution – EV adoption is accelerating around the world, dramatically increasing demand for lithium, cobalt, nickel, copper and other key minerals. Total EV sales increased 70% in 2021 and are projected to rise more than 5-fold by 2030. This will require a massive increase in mineral supply.
Renewable energy expansion – Solar, wind and other renewables are seeing surging growth as countries aim to cut carbon emissions. This further increases metals demand for batteries, transmission lines, wiring and other components.
Supply chain vulnerabilities – The pandemic and geopolitics have exposed risks of relying on a few key countries for critical mineral supply. Governments are now focused on developing domestic mining capacity to ensure supply security.
Decarbonization efforts – Reaching net zero emissions will require a staggering volume of minerals for clean energy infrastructure buildout. Models estimate needing 30 times more lithium and 15 times more cobalt by 2040.
These trends all point to a pending boom in mining investment and production. The demand outlook has fundamentally shifted in a more positive direction.
For investors, this macro backdrop presents an opportunity to capitalize on the coming mining supercycle. Some ways to gain exposure include:
Lithium mining stocks – Lithium prices have skyrocketed 10-fold in the past two years as demand for electric vehicle batteries has soared. Leading lithium miners like Albemarle, SQM and Livent are seeing their earnings multiply. They are investing heavily to aggressively expand production capacity to ride the lithium boom. Their stocks still may have substantial upside given the tight supply and surging demand forecasts.
Nickel and cobalt miners – Clean energy technologies like batteries require vast amounts of nickel and cobalt. Both metals face looming supply deficits. Miners expanding production such as Glencore, Sherritt International and Giga Metals stand to benefit enormously from surging demand and higher prices over the coming decade. These miners offer some of the best leverage to capitalize on the EV battery revolution.
Copper miners – Copper is essential for global electrification and will be required by the millions of tons for EV charging networks, power grids, wiring and electronics. Leading copper miners like Freeport McMoRan, Southern Copper and First Quantum Minerals offer direct exposure to higher copper prices. Many are expanding production while also paying healthy dividends.
Diversified mining majors – Large diversified miners like BHP, Rio Tinto and Vale mine a broad mix of commodities from copper and iron ore to coal and potash. Their diversification provides stability while still benefiting from the overall minerals boom. These global giants pay some of the highest dividends in the market.
Junior mining stocks – Earlier stage mining companies developing new projects provide extreme upside potential leverage but also greater risk. Conduct thorough due diligence on management track record, finances, permitting status and feasibility studies before investing.
Physical gold and silver – Precious metals like gold and silver can provide a hedge against market volatility. Buying physical coins and bars or investing in ETFs offers exposure. Just a small allocation of 5-10% can help balance a portfolio.
Mining ETFs – Funds like the Global X Lithium ETF (LIT), VanEck Vectors Gold Miners ETF (GDX) and SPDR Metals & Mining ETF (XME) provide diversified exposure to mining stocks and commodities. This simplifies investing in the sector.
With mining poised to boom, investors have many options to position for the coming supercycle. As with any investment, proper due diligence and risk management remain critical. But the macro trends point to a bright future for mining stocks. For investors, now may be the ideal time to position for the coming mining supercycle.
The mining sector has produced enormous wealth for investors who’ve managed to time the boom and bust cycles. Legendary investors like Robert Friedland, Ross Beaty, Lukas Lundin and Rick Rule have built fortunes by profiting from these fluctuations. Understanding their success stories can help guide investors looking to capitalize on the next mining upcycle.
Rick Rule – The Contrarian
Rick Rule pioneered a contrarian approach to mining investment. When others fled during downturns, Rule saw opportunity. He built expertise in natural resources first as a broker and then establishing Global Resource Investments in the 1990s.
Rule made fortunes by financing promising junior miners and explorers when markets were depressed. He helped fund their projects and acquisitions, earning stakes that paid off enormously when prices recovered. Rule exemplified patience in holding assets through slumps and rigor in evaluating companies.
For investors, Rule’s story highlights the potential of a contrarian mindset. The best values often emerge when sentiment is bleakest. Rule continues dispensing wisdom and seeking hidden gems, now as part of Sprott Inc.
Robert Friedland – The Visionary
Few capture the boom and bust nature of mining like Robert Friedland. The self-made billionaire got his start in mining by investing $50,000 to acquire an abandoned mine in Canada. He turned it into the wildly productive Voisey’s Bay nickel project that later sold for $4.3 billion.
Friedland replicated this formula across continents with Ivanhoe Mines, discovering major copper deposits in Asia and platinum reserves in South Africa. His eye for recognizing potential deposits before others has earned him the moniker of the “mining visionary.”
Ross Beaty – The Speculator
Canadian financier Ross Beaty took a more speculative approach to mining fortunes. In the 1990s, he bought cheap silver reserves in Bolivia that would become the basis for Pan American Silver, one of the world’s top producers.
When silver prices spiked in 2011, Beaty cashed out at the market peak – turning an initial $2 million investment into a $1 billion windfall. He replicated this success by speculating early on lithium miners in anticipation of surging electric vehicle demand.
Lukas Lundin – The Empire Builder
As the scion of a famous Swedish mining family, Lukas Lundin seemed destined for the industry. He helped grow the Lundin Group into a billion dollar mining empire through acquisitions and mergers.
Lundin acquired undervalued assets during slumps and consolidated them into larger firms like Lundin Mining when prices recovered. He also partnered with legendary explorers like Robert Friedland to help discover new deposits.
Positioning for the Next Supercycle
With the mining industry potentially on the cusp of a new supercycle, there are lessons to draw from these legends. Rule’s contrarian approach demonstrates the value of investing when others are fearful. Friedland’s discoveries show the vast potential still remaining. Beaty’s speculation reveals the leverage possible with junior miners. And Lundin’s empire reveals the power of diversification across the sector.
Mark Reichman, Senior Research Analyst, Natural Resources, Noble Capital Markets, Inc.
Refer to the bottom of the report for important disclosures
Relative performance. During the fourth quarter, mining companies (as measured by the XME) appreciated 14.0% compared to a gain of 11.2% for the S&P 500 index. The VanEck Vectors Gold Miners (GDX) and Junior Gold Miners (GDXJ) ETFs were up 15.2% and 17.6%, respectively. Gold, silver, and copper futures prices gained 11.0%, 7.0%, and 4.1%, respectively, while nickel and lead declined 11.2% and 5.5%. Zinc prices were flat. For the full year 2023, all indices were in positive territory, led by the XME which appreciated 20.1%, but underperformed the S&P 500 which gained 24.2%.
Precious metals outlook. Our outlook for precious metals and precious metals mining equities remains favorable. Factors supporting our view include: 1) the Federal Reserve appears to have reached the end of its tightening cycle, 2) heightened geopolitical uncertainty, 3) growth in U.S. deficit spending and national debt, and 4) increasing investments in gold by central banks. Based on these factors, along with the potential for lower interest rates and a weaker dollar, we think portfolio allocations to precious metals could increase. The futures price of gold rose 13.4% in 2023 and closed the year at $2,071.80 per ounce.
Outlook for industrial and battery metals. While slower economic growth could provide a headwind for industrial metals demand and prices, longer-term secular trends such as electrification remain supportive of supply and demand fundamentals for metals such as copper. Although the longer-term outlooks for battery metals such as lithium, nickel, and cobalt are constructive, the near-term outlook remains challenging due to unfavorable supply and demand fundamentals. In 2023, futures prices for battery grade lithium, nickel and cobalt fell 81.4%, 43.6%, and 44.2%, respectively. Lower near-term prices may slow new development making existing projects attractive and better positioned to take advantage of stronger pricing when demand inevitably accelerates.
Putting it all together. We think the precious metals mining sub-sector is poised for outperformance in 2024. While well-diversified portfolios should have exposure to precious metals, mining equities may offer a stronger current alternative to bullion. In our opinion, junior companies remain attractive based on valuation, and we expect industry consolidation to accelerate as senior producers seek to replenish reserves and resources.
GENERAL DISCLAIMERS
All statements or opinions contained herein that include the words “we”, “us”, or “our” are solely the responsibility of Noble Capital Markets, Inc.(“Noble”) and do not necessarily reflect statements or opinions expressed by any person or party affiliated with the company mentioned in this report. Any opinions expressed herein are subject to change without notice. All information provided herein is based on public and non-public information believed to be accurate and reliable, but is not necessarily complete and cannot be guaranteed. No judgment is hereby expressed or should be implied as to the suitability of any security described herein for any specific investor or any specific investment portfolio. The decision to undertake any investment regarding the security mentioned herein should be made by each reader of this publication based on its own appraisal of the implications and risks of such decision.
This publication is intended for information purposes only and shall not constitute an offer to buy/sell or the solicitation of an offer to buy/sell any security mentioned in this report, nor shall there be any sale of the security herein in any state or domicile in which said offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or domicile. This publication and all information, comments, statements or opinions contained or expressed herein are applicable only as of the date of this publication and subject to change without prior notice. Past performance is not indicative of future results. Noble accepts no liability for loss arising from the use of the material in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to Noble. This report is not to be relied upon as a substitute for the exercising of independent judgement. Noble may have published, and may in the future publish, other research reports that are inconsistent with, and reach different conclusions from, the information provided in this report. Noble is under no obligation to bring to the attention of any recipient of this report, any past or future reports. Investors should only consider this report as single factor in making an investment decision.
IMPORTANT DISCLOSURES
This publication is confidential for the information of the addressee only and may not be reproduced in whole or in part, copies circulated, or discussed to another party, without the written consent of Noble Capital Markets, Inc. (“Noble”). Noble seeks to update its research as appropriate, but may be unable to do so based upon various regulatory constraints. Research reports are not published at regular intervals; publication times and dates are based upon the analyst’s judgement. Noble professionals including traders, salespeople and investment bankers may provide written or oral market commentary, or discuss trading strategies to Noble clients and the Noble proprietary trading desk that reflect opinions that are contrary to the opinions expressed in this research report. The majority of companies that Noble follows are emerging growth companies. Securities in these companies involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Noble research reports may not be suitable for some investors and as such, investors must take extra care and make their own determination of the appropriateness of an investment based upon risk tolerance, investment objectives and financial status.
Company Specific Disclosures
The following disclosures relate to relationships between Noble and the company (the “Company”) covered by the Noble Research Division and referred to in this research report. Noble is not a market maker in any of the companies mentioned in this report. Noble intends to seek compensation for investment banking services and non-investment banking services (securities and non-securities related) with any or all of the companies mentioned in this report within the next 3 months
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
This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to Noble Capital Markets, Inc. by an investment advisor, that advisor may receive a benefit in respect of transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by Noble Capital Markets, Inc.. This report may not be reproduced, distributed or published for any purpose unless authorized by Noble Capital Markets, Inc..
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
Gold prices have been on a dazzling run in recent months, with the precious metal notching consecutive monthly gains to reach new all-time highs. On Monday, spot gold prices topped $2,100 an ounce for the first time ever, hitting $2,110 before pulling back slightly. This adds to the previous record set back on Friday when prices exceeded $2,075, blowing past 2020’s earlier high point.
Analysts say gold still has room to run in 2023 and 2024 as key conditions line up to support further upside for bullion. Low interest rates, a weakening US dollar, rising inflation concerns globally, and an array of simmering geopolitical conflicts should all conspire to keep safe haven demand elevated.
“There is simply less leverage this time around versus 2011 in gold,” said Nicky Shiels of MKS PAMP, noting that the current dynamics put $2,200/oz within reach. Other experts concur, with UOB strategist Heng Koon How targeting $2,200 gold by end-2024, and TD Securities anticipating average prices around $2,100 in Q2 2024.
Fueling this gold fever has been robust central bank buying, especially across emerging markets. Recent data shows 24% of central banks worldwide intend to pad their gold reserves over the next year as economic uncertainty persists. With these institutions showing waning faith in traditional reserve assets like the US dollar, their bullion accumulation provides a sturdy pillar of support.
Geopolitical Flare-Ups Stoke Safe Haven Appeal
Mounting geopolitical tensions represent another propellant behind gold’s rise. The bloody conflict between Israel and Palestine has recently stoked investor fears, driving many towards gold’s relative stability. Looking ahead, strategists believe various other hotspots could flare up and lift bullion demand more.
Besides the Middle East, worsening frictions between China and Taiwan or a resurgence of the crisis in Ukraine could shock markets. And if the US gets dragged into any new foreign entanglements, it may have to ramp up defense spending and borrowing, potentially weakening both growth and the dollar.
With so many risks swirling, portfolio managers and retail buyers appear increasingly eager to hedge with gold. Notably, demand has climbed even as gold prices touched multi-year highs. This underscores bullion’s unique status as a tried-and-true safe haven asset.
Fed Policy Outlook Could Offer Further Boost
Though gold has powered higher despite a spate of Fed rate hikes, any change in this tightening cycle would provide another major catalyst. After lifting interest rates rapidly from near-zero, policymakers must now decide whether to keep tightening or ease off the brakes.
Several officials, including Governor Christopher Waller, have hinted rates may not rise much further if inflation keeps slowing as expected. Markets thus see potential Fed rate cuts arriving sometime in 2024.
If implemented, this dovish shift would likely hamstring the dollar and bond yields, stirring more demand for non-interest-bearing gold. Hence analysts view Fed pivots as a probable linchpin that keeps prices locked above $2,000 over the next couple of years.
With stars aligned for gold both fundamentally and geopolitically, all the ingredients seem in place for its dazzling run to continue. That leaves bulls dreaming ever more ambitiously of how high prices could yet soar. However, given gold’s inherent volatility, traders should steel themselves for pullbacks as well while enjoying the ride upwards.
Mark Reichman, Senior Research Analyst, Natural Resources, Noble Capital Markets, Inc.
Refer to the bottom of the report for important disclosures
Mining companies outperform the broader market. During the third quarter, mining companies (as measured by the XME) rose 3.3% compared to a decline of 3.6% for the S&P 500 index. The VanEck Vectors Gold Miners (GDX) and Junior Gold Miners (GDXJ) ETFs were down 10.6% and 9.6%, respectively. Gold, silver, and copper futures prices fell 3.3%, 1.6%, and 0.6%, respectively, while zinc and lead were up 8.7% and 6.2%. Gold was likely negatively impacted by the Federal Reserve’s higher rates for longer messaging coupled with a 3.2% increase in the U.S. Dollar Index. Year-to-date through September 30th, the XME, GDX, and GDXJ have all lagged the S&P 500 index return of 11.7%.
Looking ahead to 2024. While we expected weakness in the second half of 2023, prices have remained relatively resilient, and we are increasingly bullish going into 2024. Factors supporting our view include: 1) the Federal Reserve appears to be nearing the end of its tightening cycle, 2) a new norm of heightened geopolitical uncertainty, 3) unsustainable growth in U.S. deficit spending and national debt, and 4) increasing investments in gold by central banks. Given the level of uncertainty reinforced by a dysfunctional U.S. political environment, we think portfolio allocations to precious metals could increase. While much will depend on monetary policy which appears to be working, we think the higher for longer mantra makes for nice messaging but actual policy will be data driven.
Outlook for industrial metals. While a potential economic downturn in the U.S. coupled with sluggish growth abroad could weigh on industrial metals demand and prices, longer-term secular trends such as electrification remain supportive of supply and demand fundamentals for metals such as copper. In the intermediate term, government support for infrastructure spending and strong demand from certain sectors such as aerospace, defense, and electronics are supportive of industrial metals.
Putting it all together. We think precious metals equities may be poised for outperformance in 2024. While well-diversified portfolios should have exposure to precious metals, mining equities may offer a stronger current alternative to bullion. In our opinion, junior companies remain attractive based on valuation and we expect industry consolidation to increase as senior producers seek to replenish reserves and resources. For industrial metals stocks, investors may need to be more selective by focusing on suppliers to end use markets with favorable demand growth fundamentals.
GENERAL DISCLAIMERS
All statements or opinions contained herein that include the words “we”, “us”, or “our” are solely the responsibility of Noble Capital Markets, Inc.(“Noble”) and do not necessarily reflect statements or opinions expressed by any person or party affiliated with the company mentioned in this report. Any opinions expressed herein are subject to change without notice. All information provided herein is based on public and non-public information believed to be accurate and reliable, but is not necessarily complete and cannot be guaranteed. No judgment is hereby expressed or should be implied as to the suitability of any security described herein for any specific investor or any specific investment portfolio. The decision to undertake any investment regarding the security mentioned herein should be made by each reader of this publication based on its own appraisal of the implications and risks of such decision.
This publication is intended for information purposes only and shall not constitute an offer to buy/sell or the solicitation of an offer to buy/sell any security mentioned in this report, nor shall there be any sale of the security herein in any state or domicile in which said offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or domicile. This publication and all information, comments, statements or opinions contained or expressed herein are applicable only as of the date of this publication and subject to change without prior notice. Past performance is not indicative of future results. Noble accepts no liability for loss arising from the use of the material in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to Noble. This report is not to be relied upon as a substitute for the exercising of independent judgement. Noble may have published, and may in the future publish, other research reports that are inconsistent with, and reach different conclusions from, the information provided in this report. Noble is under no obligation to bring to the attention of any recipient of this report, any past or future reports. Investors should only consider this report as single factor in making an investment decision.
IMPORTANT DISCLOSURES
This publication is confidential for the information of the addressee only and may not be reproduced in whole or in part, copies circulated, or discussed to another party, without the written consent of Noble Capital Markets, Inc. (“Noble”). Noble seeks to update its research as appropriate, but may be unable to do so based upon various regulatory constraints. Research reports are not published at regular intervals; publication times and dates are based upon the analyst’s judgement. Noble professionals including traders, salespeople and investment bankers may provide written or oral market commentary, or discuss trading strategies to Noble clients and the Noble proprietary trading desk that reflect opinions that are contrary to the opinions expressed in this research report. The majority of companies that Noble follows are emerging growth companies. Securities in these companies involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Noble research reports may not be suitable for some investors and as such, investors must take extra care and make their own determination of the appropriateness of an investment based upon risk tolerance, investment objectives and financial status.
Company Specific Disclosures
The following disclosures relate to relationships between Noble and the company (the “Company”) covered by the Noble Research Division and referred to in this research report. Noble is not a market maker in any of the companies mentioned in this report. Noble intends to seek compensation for investment banking services and non-investment banking services (securities and non-securities related) with any or all of the companies mentioned in this report within the next 3 months
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
This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to Noble Capital Markets, Inc. by an investment advisor, that advisor may receive a benefit in respect of transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by Noble Capital Markets, Inc.. This report may not be reproduced, distributed or published for any purpose unless authorized by Noble Capital Markets, Inc..
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
Metalla Royalty & Streaming Ltd. (TSXV: MTA) (NYSE American: MTA) and Nova Royalty Corp. (TSXV: NOVR) (OTCQB: NOVRF) have announced a definitive agreement to combine in an all-stock deal valued at approximately $190 million. The merger will create a larger royalty and streaming company focused on precious and base metals.
Under the agreement, Nova shareholders will receive 0.36 shares of Metalla for each Nova share they own. This represents a premium of 25% based on recent share prices.
The combined company will hold a portfolio of over 100 royalties and streams on mine projects operated by major miners like Barrick, Newmont, and Glencore. The deal is intended to boost scale, diversify assets, and enhance access to capital.
Nova recently conducted a strategic review process with the goal of maximizing shareholder value. After considering options, the Nova Board determined the merger with Metalla offered the best opportunity.
Both companies’ Boards have unanimously approved the transaction. It still requires shareholder and regulatory approvals before expected completion in late 2023. The merged entity will trade on the NYSE American exchange.
An investment firm called Beedie Capital is investing $15 million and expanding Metalla’s convertible loan facility by $35 million in conjunction with the deal. This will provide capital to fund further acquisitions and growth.
Brett Heath, CEO of Metalla, said the combination creates a clear path to becoming an intermediate royalty company. Nova interim CEO Hashim Ahmed noted the merger provides improved scale, cash flow, and trading liquidity.
The companies believe the increased diversification into copper along with gold and silver will give shareholders exposure to critical metals needed for the energy transition. According to management, the merged portfolio will have peer-leading growth potential.
Mark Reichman, Senior Research Analyst, Natural Resources, Noble Capital Markets, Inc.
Refer to the bottom of the report for important disclosures
Mining companies trail the broader market. During the second quarter, mining companies (as measured by the XME) declined 4.4% compared to a gain of 8.3% for the S&P 500 index. The VanEck Vectors Gold Miners (GDX) and Junior Gold Miners (GDXJ) ETFs were down 6.9% and 9.7%, respectively. Gold, silver, copper, and zinc futures prices fell 2.0%, 5.6%, 8.2%, and 15.6%, respectively, while lead increased 1.2%. Year-to-date through June 30, gold futures prices were up 5.7%, while silver was down 5.1%. Copper, lead, and zinc prices declined 1.40%, 3.1%, and 19.9%, respectively.
Precious metals headwinds. While gold prices crossed $2,000 an ounce during the second quarter on the back of turmoil in the banking sector, concerns moderated, and the resiliency of the U.S. economy seemed to favor risk-on assets. Additionally, rising short-term interest rates have provided investors with an alternative haven for their funds. During the January, March, and May Federal Open Market Committee (FOMC) meetings, the Federal Reserve served up three 25 basis point rate increases and paused in June keeping the target federal funds rate in the range of 5.00% to 5.25%. Expectations are for additional increases in 2023. Precious metals may be challenged as real yields rise, along with the potential for a stronger U.S. dollar. While we expect precious metals prices to remain at levels that are economic for producers, we expect some weakness in pricing during the second half of 2023.
Outlook for industrial metals. While the long-term investment case for owning industrial metals mining companies remains favorable, it is still too early to offer a bullish call due to near-term concerns about economic growth in the U.S. and abroad. Longer-term secular trends, including electrification, remain supportive of supply and demand fundamentals for copper.
Putting it all together. While well-diversified portfolios should have exposure to precious metals, mining equities may offer a stronger current alternative to bullion. In our opinion, junior companies remain attractive based on valuation, and we expect industry consolidation to increase as senior producers seek to replenish reserves and resources. Longer-term, global central banks could increase gold reserves as they seek to move away from their reliance on the U.S. dollar as a reserve currency which could be supportive of gold prices. While the near-term outlook for industrial metals could be negatively impacted by near-term macroeconomic factors, an eventual return to economic growth could result in strong prices due to potential supply and demand imbalances.
GENERAL DISCLAIMERS
All statements or opinions contained herein that include the words “we”, “us”, or “our” are solely the responsibility of Noble Capital Markets, Inc.(“Noble”) and do not necessarily reflect statements or opinions expressed by any person or party affiliated with the company mentioned in this report. Any opinions expressed herein are subject to change without notice. All information provided herein is based on public and non-public information believed to be accurate and reliable, but is not necessarily complete and cannot be guaranteed. No judgment is hereby expressed or should be implied as to the suitability of any security described herein for any specific investor or any specific investment portfolio. The decision to undertake any investment regarding the security mentioned herein should be made by each reader of this publication based on its own appraisal of the implications and risks of such decision.
This publication is intended for information purposes only and shall not constitute an offer to buy/sell or the solicitation of an offer to buy/sell any security mentioned in this report, nor shall there be any sale of the security herein in any state or domicile in which said offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or domicile. This publication and all information, comments, statements or opinions contained or expressed herein are applicable only as of the date of this publication and subject to change without prior notice. Past performance is not indicative of future results. Noble accepts no liability for loss arising from the use of the material in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to Noble. This report is not to be relied upon as a substitute for the exercising of independent judgement. Noble may have published, and may in the future publish, other research reports that are inconsistent with, and reach different conclusions from, the information provided in this report. Noble is under no obligation to bring to the attention of any recipient of this report, any past or future reports. Investors should only consider this report as single factor in making an investment decision.
IMPORTANT DISCLOSURES
This publication is confidential for the information of the addressee only and may not be reproduced in whole or in part, copies circulated, or discussed to another party, without the written consent of Noble Capital Markets, Inc. (“Noble”). Noble seeks to update its research as appropriate, but may be unable to do so based upon various regulatory constraints. Research reports are not published at regular intervals; publication times and dates are based upon the analyst’s judgement. Noble professionals including traders, salespeople and investment bankers may provide written or oral market commentary, or discuss trading strategies to Noble clients and the Noble proprietary trading desk that reflect opinions that are contrary to the opinions expressed in this research report. The majority of companies that Noble follows are emerging growth companies. Securities in these companies involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Noble research reports may not be suitable for some investors and as such, investors must take extra care and make their own determination of the appropriateness of an investment based upon risk tolerance, investment objectives and financial status.
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The following disclosures relate to relationships between Noble and the company (the “Company”) covered by the Noble Research Division and referred to in this research report. Noble is not a market maker in any of the companies mentioned in this report. Noble intends to seek compensation for investment banking services and non-investment banking services (securities and non-securities related) with any or all of the companies mentioned in this report within the next 3 months
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
This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to Noble Capital Markets, Inc. by an investment advisor, that advisor may receive a benefit in respect of transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by Noble Capital Markets, Inc.. This report may not be reproduced, distributed or published for any purpose unless authorized by Noble Capital Markets, Inc..
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.
Mark Reichman, Senior Research Analyst, Natural Resources, Noble Capital Markets, Inc.
Refer to the bottom of the report for important disclosures
Gold shined during the first quarter. During the first quarter, mining companies (as measured by the XME) appreciated 6.7% compared to a gain of 7.0% for the S&P 500 index. The VanEck Vectors Gold Miners (GDX) and Junior Gold Miners (GDXJ) ETFs were up 12.9% and 10.8%, respectively. Gold, silver, and copper futures prices gained 7.8%, 0.5%, and 7.4%, respectively, while lead and zinc declined 3.6% and 4.3%, respectively. Despite continuing rate hikes by the Federal Reserve, turmoil in the banking sector, along with the market’s speculation of its potential impact on Federal Reserve monetary policy, enhanced gold’s appeal. Weakness in base metals, with the exception of copper, may be attributed to slowing economic growth and the potential for an economic downturn. In 2022, the price of copper declined 13.2% and so it was likely due for a rebound.
Further upside to the gold price? Assuming worries about the U.S. banking system abate, we think gold could give up some of its recent gains although we remain constructive on precious metals. After peaking in early March, the yield on the 10-year treasury note and the U.S. Dollar Index reversed course with the yield on the treasury ending at 3.49% compared to 3.88% at the end of 2022 and the U.S. dollar Index down 1% during the quarter. Most of this was the result of the recent banking turmoil. While we continue to believe interest rates could peak by mid-year, the big question is how long before they begin easing rates. This will obviously depend on economic conditions, the inflation rate, and employment.
Outlook for industrial metals. While the long-term investment case for owning industrial metals mining companies remains favorable, it may be too early to offer a bullish call due to near-term concerns about economic growth in the U.S. and abroad. During the recent Prospectors & Developers Association of Canada (PDAC) convention, key themes in the keynote presentations were electrification and growing demand for critical minerals and battery metals, including cobalt, copper, lithium, magnesium, and nickel, critical to securing a decarbonized future with broad applications in electric vehicles, charging infrastructure, solar power, and wind turbines.
Conclusion. We think precious metals mining companies, notably juniors, continue to offer attractive return potential. While the near-term outlook for industrial metals could be negatively impacted by near-term macroeconomic factors, an eventual return to economic growth could result in strong prices due to potential supply and demand imbalances.
GENERAL DISCLAIMERS
All statements or opinions contained herein that include the words “we”, “us”, or “our” are solely the responsibility of Noble Capital Markets, Inc.(“Noble”) and do not necessarily reflect statements or opinions expressed by any person or party affiliated with the company mentioned in this report. Any opinions expressed herein are subject to change without notice. All information provided herein is based on public and non-public information believed to be accurate and reliable, but is not necessarily complete and cannot be guaranteed. No judgment is hereby expressed or should be implied as to the suitability of any security described herein for any specific investor or any specific investment portfolio. The decision to undertake any investment regarding the security mentioned herein should be made by each reader of this publication based on its own appraisal of the implications and risks of such decision.
This publication is intended for information purposes only and shall not constitute an offer to buy/sell or the solicitation of an offer to buy/sell any security mentioned in this report, nor shall there be any sale of the security herein in any state or domicile in which said offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or domicile. This publication and all information, comments, statements or opinions contained or expressed herein are applicable only as of the date of this publication and subject to change without prior notice. Past performance is not indicative of future results. Noble accepts no liability for loss arising from the use of the material in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to Noble. This report is not to be relied upon as a substitute for the exercising of independent judgement. Noble may have published, and may in the future publish, other research reports that are inconsistent with, and reach different conclusions from, the information provided in this report. Noble is under no obligation to bring to the attention of any recipient of this report, any past or future reports. Investors should only consider this report as single factor in making an investment decision.
IMPORTANT DISCLOSURES
This publication is confidential for the information of the addressee only and may not be reproduced in whole or in part, copies circulated, or discussed to another party, without the written consent of Noble Capital Markets, Inc. (“Noble”). Noble seeks to update its research as appropriate, but may be unable to do so based upon various regulatory constraints. Research reports are not published at regular intervals; publication times and dates are based upon the analyst’s judgement. Noble professionals including traders, salespeople and investment bankers may provide written or oral market commentary, or discuss trading strategies to Noble clients and the Noble proprietary trading desk that reflect opinions that are contrary to the opinions expressed in this research report. The majority of companies that Noble follows are emerging growth companies. Securities in these companies involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Noble research reports may not be suitable for some investors and as such, investors must take extra care and make their own determination of the appropriateness of an investment based upon risk tolerance, investment objectives and financial status.
Company Specific Disclosures
The following disclosures relate to relationships between Noble and the company (the “Company”) covered by the Noble Research Division and referred to in this research report. Noble is not a market maker in any of the companies mentioned in this report. Noble intends to seek compensation for investment banking services and non-investment banking services (securities and non-securities related) with any or all of the companies mentioned in this report within the next 3 months
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
This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to Noble Capital Markets, Inc. by an investment advisor, that advisor may receive a benefit in respect of transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by Noble Capital Markets, Inc.. This report may not be reproduced, distributed or published for any purpose unless authorized by Noble Capital Markets, Inc..
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.
Mark Reichman, Senior Research Analyst, Natural Resources, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
Initiating with an Outperform rating. We are initiating coverage of LithiumBank Resources Corp. with an Outperform rating and a price target of US$2.75 or C$3.65 per share. LithiumBank is advancing its flagship Boardwalk lithium brine project and is developing several other projects, notably Park Place and Kindersley, in parallel. The company expects to complete a preliminary economic assessment (PEA) for the Boardwalk Project by year-end 2022 to be published in early 2023. Boardwalk could go into production as early as 2026. We have assumed the company is able to upgrade the resource to support 30,400 tonnes of lithium carbonate equivalent production per day over a 20-year life.
Significant indicated and inferred resources. In November 2022, LithiumBank released results from an updated NI 43-101 mineral resource estimate for the Boardwalk project. Resources include 393,000 tonnes of indicated lithium carbonate equivalent resources grading 71.6 milligrams per liter lithium and 5,808,000 tonnes of inferred lithium carbonate equivalent at a grade of 68.0 milligrams per liter lithium. We think management has a credible path to upgrade additional resources to measured and indicated, along with adding resources.
This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
