Metals & Mining

While gold prices have generally discounted prospects of low/negative global (and possibly US) nominal interest rates as monetary authorities take turns injecting much needed liquidity into the financial system, other metals remain pressured as coronavirus and deflationary crude oil pricing reset. Given the Federal Reserve Board’s aggressive fed funds rate reduction and prospective pledge to purchase US Treasury and mortgage securities, gold should gain relative support especially as global central banks default towards accommodation (although recognizing source of funds potential during a market liquidation). We temper our near-term views on aluminum pricing, while believe copper can emerge if Chinese stimulus expectations are met.We believe gold equities can continue to operate at above mid-cycle levels and gain valuation support as economic expectations reset as managements continue to remain focused on disciplined growth capital investment and driving operating efficiency gains. The past several trading days have driven gold miner share underperformance versus spot gold as investor portfolio adjustments left no group untouched. Dividend growth in line with pricing could establish added investor confidence. The volatility and commodity price pressure will not only defer evaluation of capital investment plans during 2020 and likely push out long lead times for new production, helping to maintain or create deficits in the face of near-term demand declines; completed FEED and feasibility studies will remain on the shelf and would expect 2020 growth capital spending to face scrutiny. While Freeport’s Grasberg transition should emerge as copper prices recover, its recent refinancing and significant insider common share buying appears supportive.


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