BMO Capital Markets Metals & Mining analysts recently met with several U.S investors, both long & short specialists as well as long-only investors, during their roadshows and have condensed their thoughts into a note. They say both investors, “view the current environment as an appropriate entry point.” Many continue to stay on the sidelines however until they “see signs of an improving macro outlook.”
BMO expects if/when the broader market turns around and becomes positive on China or recovery from a global recession, there will be a “significant catch-up reinvestment” period in the space.
Investors still seem to be bearish on a near-term level, primarily due to a bearish outlook on China’s economy, which translates into weaker demand for commodities for home building. Investors are still focusing on free cash flow and a company’s return on capital as cost inflation continues to put pressure on mining companies.
BMO adds that events “which move share prices in the short term” are increasingly important and continue to grow into year-end. They note that outside of event-driven and merger arbitrage events, there are several near-term large-scale catalysts on a company-specific level, such as the details on the Pueblo Viejo tailings expansion project for Barrick Gold (TSX: ABX), the financing plan for IAMGOLD’s (TSX: IMG) Cote project, or the achievement of production at Teck Resources’ (TSX: TECK) Quebrada Blance Phase 2 project.
Though there are a number of catalysts, BMO believes that investors continue to look for negative catalysts that will impact a company’s ability to generate free cash flow; these catalysts include geopolitical risks, potential future aggressive growth or M&A, and items such as exposure to Europe.
With this, BMO says that they continue to see investors’ appetites get skewed towards the large caps and companies that are regarded as safer investments, such as First Quantum Minerals (TSX: FM), Teck Resources, Agnico Eagle (TSX: AEM), Barrick Gold, and Newmont Corp (TSX: NGT).
Lastly, BMO continues to believe that investors remain underweight on both base and precious metals, with investors being more cautious on base metals due to their global economic outlook. As a result, they believe that gold looks attractive on a relative basis today. Still, over the longer term, they expect both gold and base metals to catch a bid, specifically those regarded as battery materials.
Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
