INTERNATIONAL - U.S.-China trade tensions weighed on copper miners in 2018 as fears of a global economic slowdown overshadowed other fundamentals. Meanwhile gold producers struggled as bullion lost its safe-haven luster until late in the year.
What’s ahead in 2019? We asked four top executives from companies including Newmont Mining Corp. and Teck Resources Ltd. for their outlooks. From dealing with debt to dividends, to corporate-level acquisitions and asset sales, no one plans to stay still.
Gary Goldberg Newmont Mining
The Colorado-based miner intends to look at non-core assets that Barrick Gold Corp. may put up for sale after its merger: “If there’s something that’s attractive at the right value for us, we’d be interested.”
The gold market had become “numb’’ to macro drivers, including Brexit, but recent stock market volatility is attracting some generalist gold investors Fed policy could benefit gold if the U.S. dollar weakens in 2019 If trade tensions trigger a U.S. recession, Goldberg thinks the dip will be relatively flat
Junior companies are finding capital very tight, which presents opportunities for Newmont to buy into projects The industry has less distressed debt than in the recent past, but that could change if gold prices slide, especially below $1,050/oz The entire industry shifting to “value over volume”
Capital allocation will be a mix of debt reduction, dividend and reinvestment “‘Pay the debt as it comes due’ is how things look today given the current gold price” Actively trying to attract generalist investors with dividend Dividend is sustainable at 56 cents/year: Goldberg “That’s not going to bring back in the income investors, but it’ll at least demonstrate to those that have been keeping an eye on the space that we are focused on shareholder returns along with making good investments” Barrick’s half stake in the Kalgoorlie Super Pit is the only asset that Newmont is publicly interested in acquiring from its rival at this stage Newmont is interested in synergies with Barrick in Nevada, and will talk to their executives “when they’re ready”
Don Lindsay Teck Resources
“We have five other copper projects, and there are many companies that are interested in either buying them from us or partnering with us,” says the CEO of Canada’s largest diversified miner, which sold a stake in its Quebrada Blanca phase 2 project this month.
Copper market likely to remain “balanced” in $2.75-$3.00/lb range for first half of 2019 Structural deficit to take effect in second half “There’s not much the industry can do to fill that gap, and that should lead to stronger prices later” Deficit could be 4 million tons/year by 2027, assuming conservative 1.8 percent annual growth in copper consumption, equivalent to “13 QB2s” Met coal market has stabilized since participants switched from quarterly benchmark negotiations to 12-month rolling average NOTE: Coal pricing changes for industry came into effect April 2017 $170 to $230 per metric ton seems a balanced range for 2019, Lindsay says Zinc market has the lowest inventories in a decade, plus large backwardation between spot and three-month futures indicates a very tight market Despite this, price is down from 2018 peak as market anticipates new global production will come on stream smoothly “If delays and disruptions occur, we’ll find out that the zinc market is still actually in deficit” Lindsay thinks the metal could trade at $1.64 to $2.04/lb by the first or second quarter of 2019
Expects flat year for acquisitions M&A to be damped not just by unwillingness to spend but also dearth of projects
The focus for Teck in 2019 is advancing QB2 Now that QB3 has been announced, Teck’s other copper projects “move down a notch”Miner may consider selling or taking on partners for those
Sean Boyd Agnico Eagle Mines Ltd.
“We don’t see a transaction out there that actually makes us a better business or that allows us to improve our share price,” the CEO and vice chairman says when asked about the possibility of merging with, or buying, another miner.
Trump tariffs have strengthened the U.S. dollar at gold’s expenseUltimately the U.S. may need to let the greenback weaken to rebalance trade, which would benefit gold Nervous equity investors could begin to turn to gold“The arrest of the CFO of Huawei, that’s just really inflamed things” Gold prices above $1,375/oz would lure generalist investors back to sector to leverage higher prices
Boyd expects fewer pure gold producers in next 10-15 years given shortages of top deposits Unit costs are trending up as miners have slashed to the bone“The last chunky bits of cost that are left are overheads” Intermediate space is logical place for wave of consolidation
The priority is ramping up Nunavut assets, Meliadine and Amaruq, to commercial production in 2019 (in 2Q and 3Q, respectively) Plans to hike dividend as that production comes on Not interested in corporate-level acquisitions“If all of a sudden we were to create this big merged company producing 4 or 5 million ounces, then our challenges get much more pronounced and more difficult”
Clive Newall First Quantum Minerals Ltd.
On prioritizing capital allocation, the president and co-founder says, “Our dividend at the moment is just nominal, but deleveraging comes first.”
Bullish long-term on copper, but the present harder to read An annual deficit of 270,000-300,000 tons is likely by 2020, assuming no major changes to economy“I think it’s still supply driven -- although the sentiment tends to be all about demand”
Miners will continue to keep purse strings tight Acquisitions likely to continue to be at asset rather than corporate level Recent investments in new copper projects suggest sector is anticipating $3-$3.30/pound copper; price settled at about $2.72 on Wednesday
Top priority is startup of Cobre Panama in 1Q of 2019 Capital allocation will prioritize debt reduction over any significant capex, new projects, or “more meaningful dividend” Looks at partnerships “from time to time” to help fund projects, but won’t comment if it’s a priority for 2019 Succession plan in place for chairman/CEO Philip Pascall, but Newall doesn’t expect him to retire in next few years On discussions around 1996 Panama contract:Contract provides fiscal stability over lifetime of Cobre Panama but doesn’t affect underlying license, downside limited On Zambia: Miner needs clarity on VAT that Zambian government owes First Quantum Unpaid duty claim will likely be resolved“We’ve carried out a very detailed audit and presented our data to the government several months ago and that is being resolved” Company not considering an exit from Zambia “From time to time you get these rather extraordinary movements in taxes but overall it’s been a reasonable place to operate” NOTE: First Quantum to Cut Zambia Copper Output After Royalties Raised.