Metals & Mining

Metals & Mining: Inflationary Transition Supports Metals Despite significant outperformance by most global mining equities during 2021, we believe metals & mining equities will continue to reflect prospects of early cycle global economic growth, supportive low-to negative real interest rates, metal supplies continuing to lag demand expectations as emerging higher inflation expectations leading global portfolio managers to increasingly emphasizing value relative to growth equity investments. De-carbonization policy and implementation requires additional supplies of non-ferrous metals, but ESG, geopolitical and emerging market economic policy upheaval through newly elected left-of-center leaders provide challenges and a net benefit to higher realized commodity prices throughout the cycle.  Management and board directives to drive enhanced near-term capital returns from improved free cash generation reflecting margin improvement, supportive and improved financial profiles should aid valuations. While we believe US and global growth fundamentals appear at the earlier stage of a long cycle, several macro factors could drive commodity price corrections, speculative funding shifts and opportunities to enhance investment positions. China uncertainty could emerge post Winter Olympics, but non-Chinese metal demand should remain supportive. During 2021, we were surprised by the rally in the value of the US dollar as the market increasingly discounted monetary policy adjustments; sharp increase in real rates could cool pricing recoveries. (Link to Metals & Mining Outlook)

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