Rate Cut Timing / Good News for Uranium and EV Metals
Published: 2/9/2024
Author: Sid Rajeev, B.Tech, CFA, MBA
Summary
More data suggesting that the Fed will likely be less dovish than previously anticipated
Our anticipated timing for the Fed’s first rate cut
Shares of a gold junior under coverage were up 34% last week
Promising news for juniors focused on uranium and EV metals
Last week, Bitcoin fell 2%; our models had indicated 3% downside potential
Companies Mentioned in this content:
FRC Top Picks
The following table shows last week’s top five performers among our Top Picks, including four junior resource companies, and an oilfield services company. The top performer, Lumina Gold (TSXV: LUM), was up 34%. We believe LUM (backed by Ross Beaty) is an appealing acquisition candidate, with one of the world’s largest undeveloped open-pittable gold-copper deposits.
Companies on our Top Picks list are up 4% on average since we initiated coverage vs -38% for the benchmark (TSXV).
*Since the earliest initiating date of companies in the list of FRC’s Top Picks (as of February 05, 2024)
*Past performance is not indicative of future performance
1. Since the earliest initiating date of companies in the list of Top Picks (as of February 05, 2024)
2. Green (blue) indicates FRC’s picks outperformed (underperformed) the benchmark.
3. Past performance is not indicative of future performance.
Weekly Mining Commentary
Last week, global equity markets were down 0.9% on average (up 1.3% in the previous week), driven by growing consumer confidence and rising yields, implying that the Fed will likely be less dovish than previously anticipated. That said, we remain confident that the Fed will start slashing rates in H1-2024.
Gold producer valuations were up 0.4% last week (up 1.2% in the prior week); base metal producers were down 3.2% last week (up 4.3% in the prior week). On average, gold producer valuations are 16% lower compared to the past three instances when gold surpassed $2k/oz.
Key sector developments (positive):
– Last week, there was a material transaction in the gold sector, consistent with our anticipated surge in M&A activity in the sector. Gold miners Red 5 Limited (ASX: RED/MCAP: $1B), and Silver Lake Resources (ASX: SLR/MCAP: $1B), are merging to form a diversified mid-tier gold miner producing 445 Koz/year.
– To reduce reliance on critical mineral producers such as China, the German government has set aside US$1.1B for investments in critical raw materials. We believe this is positive news for juniors focused on EV metals.
– Japan has added uranium to its list of critical minerals. Japan, a major consumer of uranium, has no domestic production, and relies on imports from Australia, Canada, and Kazakhstan.
Updates from Resource Companies Under Coverage
PR Title : Escalones project update (Chile)
Opinion Negative – Last month, WCU faced a major setback when the Chilean government signed decrees establishing sanctuaries in several locations in Chile, one of which includes WCU’s Escalones project. This development has raised considerable uncertainty about Escalones’s potential for advancement to production. Management is reviewing various options to determine the most effective path forward. WCU also owns the Zonia copper project in Arizona, which hosts 1+ Blbs of copper. A 2018 PEA had returned an ATNPV8% of US$192M at US$3/lb copper, and US$447M at US$4/lb copper. We are removing our valuation on Escalones, and adjusting our fair value estimate on WCU from $1.28 to $0.35/share. WCU is trading at $0.07/share.
CMC Metals Ltd. / TSXV:CMB
PR Title: CMBProvided an update on its Gavilanes silver-gold polymetallic project in the San Dimas area, Durango, Mexico
Opinion Positive – Surface rights owners have agreed to an LOI with CMC to advance exploration. The property, located near First Majestic Silver’s (TSX: FR) San Dimas/Tayolitta mine, hosts small tonnage/high-grade inferred resources totaling 18.2 Moz AgEq, grading 320 g/t. The project is currently permitted for 4,650 m of drilling. CMB aims to drill 35,000-50,000 m during 2024-2026.
North Peak Resources Ltd. / TSXV: NPR
PR Title: Announced results of a dump sampling program on Prospect Mountain, Eureka, Nevada
Opinion Positive – Surface sampling returned high gold grades of up to 34 gpt, averaging 2.42 g/t. This project is a historic gold/silver/lead producer, directly bordering i-80 Gold’s (TSX: IAU/MCAP: $623M) Ruby Hill project, which hosts a large gold-silver resource. NPR is planning a drill program.
Weekly Crypto Commentary
Prices of mainstream/popular cryptos were down 4% on average last week (up 8% in the previous week).
The global MCAP of cryptos is US$1.7T, up 1% MoM, and 96%YoY.
Last week, our models had indicated 3% downside potential for Bitcoin (BTC). BTC was down 2% last week, while the S&P 500 was up 1%. Our models suggest that the current fair value of BTC is US$41.8k (previously US$41.9k), indicating 2% downside potential from the current price.
The global hash rate of BTC (defined as calculations performed per second/an indicator of network difficulty) is 549 exahashes per second (EH/s), down 1% WoW, but up 1% MoM. The decrease in hash rates is positive for miners as their efficiency rates (BTC production per EH/s) are inversely linked to global hash rates.
