Gold is here to stay but base metals are more attractive - PDAC Panel
(Kitco News) - Fundamental support for gold is not expected to go away anytime soon, but investors should be more focused on assets benefiting from a robust global economic recovery and the growing green energy transition, according to a panel of bankers.
In the first half of 2020, all-time highs in the gold price created the most constructive equity financing environment since the last bull market in 2011, according to Canada's leading mineral industry investment bankers in a presentation during the Prospectors & Developers Association of Canada's (PDAC) 2021 virtual mining conference.
However, since the second half of last year, interest has shifted to base metals as economic growth comes into sharper focus. The panelists noted that iron ore prices were the best performing metal in 2020, with prices rallying 70%. They pointed out that iron ore was driven by the renewed Chinese demand as the country recovered from the COVID-19 pandemic.
Silver was the second-best performing metal last year, rallying 47%; copper came in third place with gains of 26% last year; and gold was in fourth place, rallying 25%. Many market analysts noted that silver managed to outperform other precious metals because of its role as a monetary metal and its strong industrial demand.
Chris Gratias, managing director and head of mining global Investment Banking at CIBC, said that the rally in base metals, which has pushed copper and tin prices to nearly 10-year highs, appears to be sustainable as global growth picks up and new demand also creeps into the market.
"The pandemic is a point in time," he said. "But if you translate global demand driving metals prices, the medium to long-term outlook is still very strong," he said. "With climate change, reducing carbon emissions electric vehicles, the green metals that are frankly essential to meet some of those lofty objectives. The world is going to need a lot more of these metals."
Ryan Latinovich, global head of mining & metals, global investment banking at RBC Capital Markets, said that the mining sector is just starting a multi-year upswing and fundamental demand remains strong.
"Miners will be a great place to be in for the next few years," he said.
Although investor interest is expected to remain strong in the mining sector, particularly in base metals and battery metals, it is still not without its challenges.
Ilan Bahar, managing director and co-head of global metals & mining, investment and corporate banking at BMO Capital Markets, said that the growth of exchange-traded funds (ETFs) remains a strong competition for the mining sector.
He explained that in 2011 the total capital invested in the gold mining sector was about $375 billion. Today, that total is up to $500 billion. However, in that time, ETF demand accounted for roughly $200 billion of the growth in the last ten years.
While ETFs demand will remain strong, Bahar said that improving liquidity in the mining sector, as companies raise money, should attract new capital.
"Capital will flow where it can make money," he said.
As to what the financing landscape will look like in 2021, the panelists said that most of the money is going into junior explorers as producers, seeing higher commodity prices, are "well cashed up."
The panel also said that as COVID-19 restrictions are eased, they expect to see more merger and acquisition activity. They said that this will be a dominant trend in capital financing in the foreseeable future.
Gratias said real pent-up demand in M&A markets will be unleashed as people start visiting projects and doing their due diligence.