RCF Mining Market Commentary: Q423

Commodity and Mining Investment Quarterly Update

Commodity Insights

In this commodity and mining investment environment update, RCF is emphasizing the big picture view of the sector, the graph below shows the relative production in metric tonnes (x-axis), price per tonne (y-axis) and total market value (size of bubble – volume x price) for each of the major metals & mining markets:

Figure 1: Metals & Mining – Relative Production and Market Value

The above graph shows the three main groups of mined commodities: Bulks & Energy, Base Metals, and Precious Metals. Of note is that each major group has a leader in terms of market size: Iron Ore, Copper and Gold. What happens with each of these three commodity market leaders is material from an overall cyclical and structural standpoint. As such, it is worth understanding the underlying detail in each metals & mining bellwether market.

  • The Iron Ore market is powering cashflow generation amongst the major existing producers, which happen to be dominated by the largest mining companies in the world, funding dividends and strong margins throughout the supply side. To maintain production and margins, new capital must be invested to maintain and grow production in the short term. RCF sees upside in parts of the iron ore investment universe, particularly in high grade (green steel furnaces need higher iron grade feed material) and unloved magnetite projects.
  • The Copper market is short of above ground metal inventories and will benefit from ongoing global growth, along with the increased electrification of global primary energy (“the Energy Transition”). Copper is the energy transition ”agnostic metal”; all forms of energy system growth, from batteries to grids, requires more copper. As such, RCF remains very positive on future copper investment for both cyclical (underinvestment) and structural (Energy Transition) reasons.
  • The Gold market in many ways underpins the whole industry. Gold continues to drive exploration investment, in both capital and drill meter terms. Gold exploration activity may find gold, or equally may discover non-gold deposits. Plenty of gold explorers have found lithium and other minerals recently, by way of practical example. RCF remains bullish on gold mining investments in the current environment, many of which are underpriced relative to physical gold. Looking forward, RCF expects to see a rerating of gold equities relative to gold in the next 3-5 years.

When observing the whole market, the log-linear continuum from one end of the market to the other becomes readily apparent. Specifically, this continuity exists from the bulk markets in the lower right-hand corner, where mineral deposits contain very high grades of metal in each tonne of ore, to the upper left-hand corner, where the metal in ore is measured in the parts per million (ppm). This continuum amongst each market appropriately prices the cost and risk of discovery, extraction and processing involved with producing the final metal, mineral or, increasingly, chemical products in each market. Put simply, mining economics make sense, where grade and processing costs drive the whole industry.

Importantly, all three major markets: Iron Ore, Copper, and Gold – remain relatively tight from a supply and demand balance standpoint, indicating the overall industry remains at the early stages of the next growth cycle. In terms of future market growth, each market will oscillate in a clockwise direction, as the supply side responds to higher price signals; growing larger, more efficient and valuable in the process. As it stands, these three major markets generates over $744bn in annual sales every year, which in combination is almost 50% greater than global semiconductor industry sales ($526.8bn)1 in 2023.

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Sources of Data

1 Semiconductor Industry Association, Global Semiconductor Sales Decrease 8.2% in 2023; Market Rebounds Late in Year. https://www.semiconductors.org/global-semiconductor-sales-decrease-8-2-in-2023-market-rebounds-late-in-year

Important Information 

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