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Q3 Mining Trends, Themes and Companies to Watch

Growth and Balance Sheet Improvement:
With commodity prices across the metals complex improving q/q and many operations returning to full capacity after Covid related downtime in 2Q20, the majority of precious and base metals producers in our coverage universe posted strong FCF growth q/q driving balance sheet improvement. Among the gold producers we highlight AEM, AUY, BTO, CXB, IAG and KGC as having significant q/q increases in FCF with FM and LUN as standouts among the base metals producers. The strong FCFs drove a reduction in net debt for the majority of our coverage companies

Gold Producers Increase Giving – Dividends Keep Increasing:
With the strong FCFs and improving balance sheets, all of our dividend paying gold producers increased dividend rates in 3Q with KGC re-instating its dividend after a multi-year hiatus. Over the past year, BTG has quadrupled its dividend while both AUY and AEM have grown dividends by ~160% and 100% respectively. The base metals producers maintained dividend rates in the quarter

4Q20 Expected to be Strongest Production Quarter of the Year:
The majority of our gold producers are expecting 4Q20 to be the strongest production quarter of the year incorporating operational re-starts, ramp-ups and mine sequencing. With the exception of OGC, gold producers in our coverage universe have delivered 71-75% of annual production guidance YTD which we expect will allow the majority to achieve production guidance for the year when incorporating the expectation of a strong 4Q. Our modeling suggests AEM could exceed annual production guidance while we expect OGC’s production to come in slightly below the guided level. Among the base metals producers, we expect FM and ERO to have strong 4Q production positioning both to achieve the top end or potentially exceed annual production guidance… CLICK HERE for the full report

Gold price tumbles on covid vaccine breakthrough

Gold prices erased last week’s gains on Monday as news of the first successful late-stage covid-19 vaccine trials prompted investors to dump safe-haven bullion and flock to riskier assets instead.

Spot gold sank below $1,900 per ounce during early hours of trading, down 5.3% to $1,853.42 by 11:15 a.m. ET. This marks its biggest single-day slide since August.

US gold futures also declined 5.0% to $1,853.70 per ounce in New York.

Equities surged after Pfizer said its experimental covid-19 vaccine was more than 90% effective. Pfizer and German partner BioNTech SE said they expect to seek US emergency use authorization later this month.

“(The news) really exceeded everyone’s best-case scenarios. There was growing nervousness that we might not get a strong vaccine result, so this unleashed the risk-on trade and for gold, signaled a massive exodus of safe-haven plays,” Edward Moya, senior market analyst at OANDA, told ReutersCLICK for complete article



Debt Growth vs. Gold and Silver

While precious metals can’t be produced out of thin air, U.S. debt can be financed through central bank money creation. In fact, U.S. debt has skyrocketed in recent years under both Democrat and Republican administrations.

This infographic from Texas Precious Metals compares the increase in public debt to the value of gold and silver coin production during U.S. presidencies.

We used U.S. public debt in our calculations, a measure of debt owed to third parties such as foreign governments, corporations, and individuals, while excluding intragovernmental holdings. To derive the value of U.S. minted gold and silver coins, we multiplied new ounces produced by the average closing price of gold or silver in each respective year.

Here’s how debt growth stacks up against gold and silver coin production during recent U.S. presidencies:  Read More

Q3/20 CGF Precious Metal Preview – Producers

Record quarterly gold price of $1,911/oz – The Q3/20 gold price averaged $1,911/oz, its best quarter ever and up 12% q/q and 30% y/y, which should drive strong second quarter earnings and cash flow, particularly with production improving post Q2/20 COVID-19 disruptions. The silver price averaged $24.36/oz in Q3, up a massive 49% q/q. The gold/silver ratio has receded to 79 from a multi-decade high of 124 set in mid-March. Base metal prices were also stronger across the board with copper averaging $2.96/lb, up 22%, and zinc and lead up 19% and 12%, respectively. WTI oil rose 46% to average $41/bbl in Q3/20 but is still down 27% y/y.

COVID-19 production rebound. With mines largely back to normal operating levels following Q1-Q2 COVID-19-related disruptions, we expect production to pick up significantly in Q3 for a number of producers. In aggregate, we expect a 19% q/q increase in gold production with more than half of producers showing >20% q/q increases (Figure 4). While COVID-19 is currently undergoing a second wave in many countries, we expect mining to largely continue as an essential service with protocols in place to manage testing, logistics, and personnel.

Poised for record AISC margins and FCF. On largely stable costs, we forecast a record AISC margin in 2020 of $737/oz, well above the previous record of $524/oz in 2011 and roughly double the $371/oz in 2019, and increasing to $946/oz in 2021. We also expect record FCF generation; for the top 6 producers we show quarterly FCF should be roughly double y/y. Similarly, we forecast 2020 aggregate FCF of ~$13 billion for precious metal companies in our coverage universe, more than double 2019 levels and forecast to reach ~$19 billion in 2021. We estimate average FCF yields for producers at ~10%, which we view as attractive. We also expect the industry to largely be in a net cash position in 2021.

We continue to be bullish on gold. We note that inflation expectations, gold, and gold equities have largely traded sideways since the end of August. We suspect the pause could be partially due to the Fed being on hold from further action so as not to be seen as “interfering” this late ahead of the upcoming US election amid the continued impasse on further fiscal stimulus and a second wave of COVID-19. We believe the Fed will ultimately step in to provide more accommodation to support inflation expectations. We believe the current macro environment continues to be supportive of the gold price with ultra-low (and negative real) interest rates, fiscal and monetary stimulus, slow growth, rising debt levels and elevated macro uncertainty. With $64 trillion in global debt yielding <1%, we believe gold provides a hedge against return-free risk.

Changes to estimates, targets and ratings – We have made minor changes to our forward-curve derived price deck with 1-2% lower gold prices across the curve. Our new LT gold price assumption is $1,984/oz ($2,015/oz previously). Our silver price deck has also decreased slightly with a new LT silver price of $25.31/oz ($25.83/oz previously). We have lowered Pretium Resources to HOLD from Spec Buy on valuation; our other ratings are unchanged.
CG precious metal top picks:
• Seniors: Kinross, B2Gold, Centerra Gold
• Intermediate/Juniors: Equinox Gold, Teranga Gold, K92 Mining, Calibre Mining, SSR Mining

CLICK HERE for the full Canaccord Genuity Research note including individual company assessments and revised target prices

Gold price rally lifts Top 50 mining stocks above $1 trillion for first time

The Top 50 most valuable mining companies added $80.2 billion in market capitalization over the three months to end September, thanks to surging gold and silver prices, iron ore prices firmly in triple digits, and a copper price flirting with two-year highs.

Mining’s majors looked poised to join the trillion dollar club at the outset of 2020, but the pandemic torpedoed the early stages of a cyclical upswing for the industry, delaying the milestone by nine months.

Measured from the height of the pandemic in March-April, the index has recovered by nearly $330 billion.

Primary gold producers and precious metals royalty companies now make up more than a third of the value of the top 50 and contributed $130 billion of the gains since the Q1 slump.

Nine out of ten of the best performers over the quarter are gold producers. No. 2 on the winners’ list is copper giant Freeport McMoRan, which, thanks to its Grasberg mine also ranks as one of the world’s largest gold producers…CLICK for complete article 

A Beginner’s Guide To Interpreting Drill Results

If you want to achieve a high success rate as a natural resource investor, then you must have the ability to accurately interpret drill results. This is something that few retail investors are capable of doing and therefore is a simple way of getting the upper hand over other speculators.

In this article we will use Unigold and their highly anticipated sulphide drilling results which are set to come out at the end of the week, as an example.

Resource Classification

Before we delve into the interpretation of drill results, we must first need to know the different classifications of resources and what they each mean.

There are three categories that resources can be classified into: measured, indicated, and inferred. The different classifications are assigned based on degrees of confidence with resources in the ‘measured’ category having the highest degree of confidence and ‘inferred’ having the lowest. The following table summarizes the degree of confidence assigned to each category of resources….CLICK for complete article