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Resource Insight – May 2024

Resource Insight – May 2024



Embracing Opportunity: A Positive Outlook for the Canadian Junior Mining Sector in 2024

As we approach mid-2024, the Canadian junior mining resource space is buzzing with positivity and exciting developments. Acquisition activity within the mining sector has surged, notably with BHP Group’s unsolicited, non-binding, all-share takeover bid for Anglo American plc (AAL), valued at $49 billion. On May 24, several major Anglo shareholders pushed for BHP to amend the bid structure or provide compensation for the risks, giving BHP one week to persuade Anglo of the deal’s value after a third bid was rebuffed and a regulatory deadline extended. Key discussions focus on BHP’s demand for Anglo to spin off its South African platinum and iron ore units, which Anglo views as overly complex and risky for its investors. BHP’s interest in AAL is driven by its exceptional copper assets, including stakes in the Los Bronces and Colla- huasi mines in Chile, and the new Quellaveco mine in Peru. If successful, this move could make BHP the world’s largest copper producer, surpassing Chile’s Codelco, signalling promising times ahead for the mining industry.

Secondly, commodity prices are displaying robust strength. Copper, gold, and uranium, vital commodities with significant impacts on various industries, are currently benefiting from favourable market conditions. Demand for industrial and precious metals has surged, driven by heightened investor interest and a supportive macroeconomic environment. This surge in demand coincides with tightening supply across multiple physical markets. Notably, copper prices continue to climb due to increasing demand from electric vehicle manufacturing, infrastructure investments, and the transition to clean energy amidst a backdrop of constrained global supply.

Source:  Bloomberg terminal

Thirdly, valuations are aligning more closely with the prices of physical commodities. For a considerable period, investors expressed frustration with the valuation of commodity producers, as they traded at a discount compared to commodity prices themselves. However, this gap is now narrowing, with major commodity and precious metal producers witnessing a notable uptick in their prices. This trend is evident in the convergence of long-term producer enterprise value for base metal producers with the price of physical copper.

Source:  Scotiabank Global Equity Research

Despite prevailing uncertainties, the metals and mining sector is poised for an exciting and promising year throughout 2024. Dynamic shifts in demand, supply chain complexities, and evolving geopolitical landscapes all contribute to a positive outlook for the sector.

Shining Bright: Radiant Futures for Uranium, Copper, and Gold in 2024

We maintain a strong optimism towards uranium, copper, and gold and have aligned our portfolios with companies poised to capitalize on the favourable price trends in these commodities. Here, we break down the factors driving higher prices, show their price movements, and explain what this all means for Canadian junior miners.


Uranium – factors driving the market

Uranium, the critical fuel for nuclear power, has seen a resurgence in interest due to the global shift towards cleaner energy sources. With countries striving to meet carbon emission reduction targets, nuclear energy is gaining traction as a reliable, low-carbon energy solution. As of mid-2024, the uranium market is witnessing a tightening supply-demand balance, largely driven by:

1. Reactivation of Nuclear Programs: Countries like China, India, and Russia are expanding their nuclear power capacities. China has ambitious plans to increase its nuclear power
output, with numerous reactors under construction. Similarly, developed nations are extending the lifespans of existing reactors and reconsidering nuclear power as part of their energy mix.

2. Supply Constraints: Major uranium producers like Kazakhstan and Canada have not significantly ramped up production, despite the rising demand. Additionally, geopolitical tensions,
particularly those involving Russia, a key player in the global uranium market, are adding uncertainty to supply chains.

3. Investment Trends: There is increasing investment in uranium exploration and development projects, spurred by higher spot prices and long-term The price of uranium has shown
a steady upward trend, reflecting heightened interest from both utilities and investors.

Uranium – Price Movement

As illustrated in the chart provided, Uranium has experienced significant price movement in 2024, driven by these three trends.

Source:  Bloomberg terminal

We anticipate that these trends will persist throughout the remainder of 2024 and into 2025.

Uranium – Implications for junior miners.

Canadian junior mining companies are benefiting from higher uranium prices and positive market sentiment, attracting investment for exploration and development. Partnerships with major mining companies provide technical expertise, financial resources, and market access. Additionally, favourable Canadian government policies, tax incentives, and strong infrastructure enhance the investment appeal for these junior miners.


Gold – factors driving the market

Gold continues to be a preferred safe-haven asset for investors, especially in times of economic uncertainty and market volatility. The outlook for gold in 2024 is influenced by several key factors:

1. Inflation and Monetary Policy: Persistent inflationary pressures and uncertainties surrounding monetary policy decisions by central banks are likely to drive investor interest in gold.
As a hedge against inflation, gold retains its appeal during periods of rising prices and currency devaluation.

2. Geopolitical Tensions: Ongoing geopolitical tensions, including conflicts and trade disputes, contribute to market instability. In such environments, gold is often viewed as a reliable
store of value, attracting both institutional and retail investors.

3. Central Bank Purchases: Central banks around the world continue to diversify their reserves by increasing gold This trend supports the demand for gold and contributes
to price stability.

4. Technological and Industrial Demand: While gold is primarily an investment asset, its use in technology and industry also supports Applications in electronics, medical devices,
and other high-tech industries contribute to the overall demand for gold.

Gold – Price Movement

As illustrated in the chart provided, gold has also experienced significant price movement in 2024, driven by the trends discussed.

Source:  Bloomberg terminal

We anticipate that these trends will continue to support the price of gold.

Gold – Implications for junior miners.

Junior mining companies in Canada focusing on gold exploration benefit from rising gold prices, which enhance project viability and attract investment. Canada’s prolific gold regions offer substantial discovery potential. The strong performance of gold draws capital to the sector, providing necessary funding. Supportive government policies and incentives create a favourable environment. Additionally, major mining companies’ interest in acquisitions and joint ventures offers opportunities for juniors to monetize assets and gain expertise from larger partners.


Copper – factors driving the market

Despite strong demand, the copper market faces several supply-side challenges:

1.  Mine Depletion and Grade Decline: Many existing copper mines are experiencing declining ore grades, which reduces production efficiency and increases costs.
This trend necessitates the development of new mining projects to meet future demand.

2. Geopolitical Risks and Regulatory Pressures: Copper mining operations are subject to geopolitical risks, regulatory changes, and environmental concerns. Countries with
significant copper reserves, such as Chile and Peru, are tightening regulations and increasing royalties, impacting production costs and investment decisions.

3. Supply Chain Disruptions: The global supply chain disruptions caused by the COVID-19 pandemic have had lasting impacts on the mining sector. Logistical challenges,
labour shortages, and rising transportation costs continue to affect copper supply chains.

Copper – Price Movement

As illustrated here, copper has also experienced significant price movement in 2024

Source:  Bloomberg terminal

As demand increases rapidly, we expect significantly higher copper prices.

Copper – Implications for junior miners.

Canadian junior mining companies focusing on copper can leverage several advantages. Canada’s vast, underexplored mineral-rich regions offer significant potential for new copper discoveries, especially for companies with strong geological expertise. Technological advancements in mining, like automation and remote sensing, improve exploration efficiency and reduce costs. Strategic partnerships with larger companies or tech firms provide resources and expertise, facilitating project advancement. Emphasizing sustainable mining practices enhances market appeal and regulatory compliance, attracting investment from environmentally conscious investors.

Shining Bright: Radiant Futures for Uranium, Copper, and Gold in 2024

The Canadian junior mining sector is primed for a prosperous 2024. With intensified acquisition activity, robust commodity prices, and narrowing valuation gaps, optimism abounds. The resurgence of uranium, copper, and gold markets, alongside supportive government policies, promises significant growth opportunities. Canadian juniors, with their exploration potential, technological prowess, and strategic partnerships, are well-positioned for success.


Glenn G. Drodge, CFA Senior Portfolio Manager

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