Q3 Mining Trends, Themes and Companies to Watch

Posted by Farooq Hamed and Judith Elliott, Raymond James Inc.

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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