14 September 2021
During August we added a copper equity to our portfolio, which was pricing in an ‘equity copper price’ of $3.55/lb for its existing operation against a copper price of $4.20/lb. Included in the company was a prospective brownfields polymetallic land package and a development asset, largely ignored by the market. The cash weighting of the fund during the month remained constant at around 8%.
The political rhetoric for net-zero carbon emissions continues. In a major policy move in mid-July, the European Commission laid out a path towards achieving net-zero GHG emissions by 2050 (including a reduction of 55% by 2030 from 1990 levels). Further details emerged in August for the revamp of the EU’s emissions trading system. This cap and trade system will force industry to buy or receive tradeable emission allowances. The EU wants to include the vehicle market in this system, by banning the sale of new gasoline and diesel cars from 2035 and promoting green fuels for vans and trucks. We see this potential development as positive for future strategic metal demand.
In the US President Biden’s proposed a $2 trillion infrastructure investment plan to repair and expand key infrastructure was passed by the Senate. The deal involves roughly US$550 bn in new federal investment in steel & materials-intensive infrastructure (US$1 trillion including previous commitments). The plan includes US$110 bn for roads, bridges & major projects, US$39 bn to modernize the transit system, US$7.5 bn for EV charging stations, US$5 bn for zero-emission and low-emission school buses, US$17 bn & US$25 bn respectively for port & airport infrastructure and US$73 bn for electric grid modernization. We see this potential development as positive for future metal demand across all sectors.
Tapering talk in the US and Europe, coupled with a stronger US dollar, weighed heavily on the precious metals sector over the past three months, especially on sentiment towards gold and silver equities. The end of the traditionally weak summer months for gold, and the fact that the gold price has now completed its correction versus industrial metal prices (Exhibit 1), is cause for some optimism for stronger gold and silver prices over the coming months. With gold equities already discounting, on average, a gold price some 20-25% below spot prices (a record!) and companies reporting record profits and solid balance sheets, any stability in precious metal prices could see a return of strong investor interest in the sector, which has been thinly traded in recent months.