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

Friday, July 2, 2021

Minerals Industry Report

Metals & Mining Second Quarter 2021 Review and Outlook

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

Refer to end of report for Analyst Certification & Disclosures

• Mining companies modestly trailed the broader market. During the second quarter of 2021, mining companies (as measured by the XME) gained 7.9% compared to 8.2% 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 up 4.6% and 3.9%, respectively. During the second quarter, gold, silver, copper, lead, and zinc futures prices were up 3.2%, 6.4%, 7.4%, 3.5%, and 9.5%, respectively. While gold and silver recovered some of their first quarter losses, prices were still down year-to-date through June 30, while copper, lead and zinc prices were up 21.8%, 13.7%, and 12.0%, respectively. While the U.S. Dollar Index rose 2.7% year-to-date through June 30, it was down under 1% during the second quarter.
• Reading the Fed’s tea leaves. The Federal Reserve threw some cold water on the reflation trade during their Federal Open Market Committee (FOMC) meeting in June with economic projections that led investors to worry that the Fed could increase rates sooner than previously expected. While the FOMC will meet again in July, investors will have to wait until the FOMC meeting in September for the next set of economic projections. In the interim, commentary at the Jackson Hole Economic Policy Symposium in August may provide more clues about the Fed’s direction.
• We remain constructive on the sector. We think gold and silver could remain somewhat range-bound for the remainder of 2021 with silver offering modestly higher upside due to growing industrial demand and where it trades relative to gold. Much will depend on inflation expectations, U.S. dollar strength, and other uncertainties. This is not a bad thing, in our view, given that precious metals prices should be profitable for producers at current levels. Demand for base metals will likely benefit from global economic growth and infrastructure spending and we think prices could go higher. Additionally, secular themes, including trends toward electrification, favor metals used in electric vehicle batteries, infrastructure, and solar and renewable power technologies.
• Taking the long view. Investors should consider gaining exposure to precious and base metals through mining stocks. Real interest rates are likely to remain low for the foreseeable future, despite potential increases in nominal rates, and gold could remain attractive as a store of value. Presently, we do not view volatile cryptocurrencies as a credible substitute for this function. Importantly, metals prices could have an upward bias given relatively modest levels of reinvestment in new reserves and resources in recent years.

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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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