Weekly Mining Commentary

Author: Sid Rajeev, Head Of Research

Four of the seven global equity indices we track had positive returns in the past week.

Current Vs Pre COVID-19(as of March 8, 2021)

Source: FRC / Various

Prices of mainstream metals fell last week due to a stronger US$, amid rising yields.

Week-over-Week(Mar 8, 2021) and Year-over-Year(Mar 8, 2021)

Source: FRC/Various

The Fed indicated last week that they have no intent to take action to control the recent spike in yields. Rising rates are typically beneficial for financials, but negative for economic growth and equity markets. However, the Senate passed Biden’s US$1.9T stimulus package last weekend. The stimulus package, and vaccine rollout, bode well for an economic recovery in the second half of this year. As shown below, inflationary expectations have started rising again, following a decline from record levels last month. Although we expect gold to be under pressure in the near-term (due to rising yields), we expect a recovery in the second half as actual inflation kicks in from a strong economic recovery driven by pent-up demand, and savings set aside by consumers.

Except Brazil, Italy, and Poland, most of the hardest hit nations continued to report a decline in new cases of COVID-19.

Daily New Cases in US, India, UK, Italy, Mexico, Brazil

Source: https://www.worldometers.info/coronavirus/

17.6% of the U.S. population has received vaccinations vs 14.9% at the same time last week. This compares to 32.7% in the U.K. (up from 29.6%). Israel is at 57.3%, up from 54.6%. The U.S. recently approved Johnson & Johnson’s (NYSE: JNJ) vaccine, which requires only one dose. Biden stated last week that the U.S. will have enough vaccines for every adult by the end of May. We now expect 50% of the U.S. population to be vaccinated by July (previously August 2021), based on the above developments, and the current run rate of 1.5 – 2.0M doses per day.

Share of People who Received at least one dose of Covid-19 vaccine, Mar 7, 2021

Source: Official data collated by Our World in Data – Last updated 8 March, 11:30(London time)

Potential Breakthrough for Nickel Supply
A noteworthy event last week was a 13% decline in nickel prices. This was a result of an announcement by China’s Tsingshan Holding Group (the world’s largest stainless steel producer) that they have developed a new technology/manufacturing process to convert nickel pig iron into a product suitable for EV batteries. We consider this to be a major development as, until recently, only Class 1 (sulphide ore), which accounts for 50% of nickel supply, was considered to be suitable for EV batteries. Due to their higher iron content and impurities, Class 2 nickel (ferronickel and nickel pig iron) was not considered to be suitable. Tsingshan’s new process could potentially double the supply of nickel for EV batteries, and ease concerns of a nickel shortage for batteries. Last month, Elon Musk had stated that nickel supply was a major concern. We had expected this news to result in a larger drop in nickel prices. Sources indicate that market participants are skeptical and uncertain of the incremental cost of this new process, and whether it is energy-intensive and/or pollutant. Tsingshan’s products are only expected to be delivered later in the year, so we will not have answers until then. Another key point is that, if more pig iron is used for EVs, there will be less supply for stainless steel. Therefore, it is a bit early for us to assess the real impact of Tsingshan’s announcement. Some sources state that Nickel prices need to be at least $7/lb for pig iron (for use in batteries) to be economic. We are maintaining our long-term forecast at US$8.

Inventory levels of base metals were generally higher on the LME, and the SHFE (Shanghai). We expect base metals prices to experience downward pressure as a result.

LME Inventory (Mar 8, 2021)

Source: FRC/Various

SHFE Inventory (Mar 5, 2021)

Source: FRC/SHFE

Despite the decline in commodity prices, valuations of gold producers were up 6% WoW, while that of base metals producers were down 1%.

Gold Producers

Source: S&P Capital IQ & FRC

Base Metal Producers

Source: S&P Capital IQ & FRC

Gold producers and Base metal producers as of March 8, 2021

Source: S&P Capital IQ & FRC

We are maintaining our forecasts, but expect prices to remain volatile in the coming months. We believe gold has the highest upside this year.

FRC Forecasts

Source: FRC

In the following section, we review companies that announced key developments in the past week. The table below summarizes the changes we made in ratings/fair value estimates/EPS projections of companies under coverage in this report:

company that announced key developments last week

Source: FRC

Weekly Mining Commentary

Author: Sid Rajeev, Head Of Research