Digging Deeper - A Review Of The Mining Sector In 2023

27th Dec '23 by Keelan Cooper

23 comments 3398 reads

Introduction

The mining sector in 2023 experienced a confluence of challenges and opportunities, marked by evolving market dynamics, geopolitical shifts, and the pressing need for critical minerals as we attempt to transition towards ‘Net Zero emissions’ by 2050.

As we delve into the performance of the sector and its outlook for the year ahead, we'll analyse key demand and supply drivers behind precious metals, platinum group metals (PGMs), base metals, and other critical resources that play a pivotal role in various industries. Additionally, we will turn our attention to some UK stocks within the mining sector, evaluating their prospects for the upcoming year.

So, let's start with a glance back at 2023, shall we?

A Year in Review - 2023

Precious Metals

In a year of complexity and volatility, precious metals emerged as the shining stars of the mining sector. The group as a whole saw impressive performance, with gold prices up 14.6% year on year and silver prices up 3.25%. These valuable metals had investors flocking towards them, seeking stability amidst economic uncertainties.

Gold, known as the bastion of stability, held its allure as a safe-haven asset throughout the year. Its price per ounce averaged around $1,800, a testament to its enduring appeal in uncertain times.

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Source: Trading Economics (Commodities Overview)

When compared to base metals and platinum group metals (PGMs), as depicted by the images above and below, the precious metals unquestionably maintained their 'safe haven' status in 2023.

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Source: Trading Economics (Commodities Overview)

Base Metals

Now, let's turn our attention to base metals. Unfortunately, it wasn't the best of times for these metals in 2023. Aside from iron ore and copper prices, which managed to hold their ground, most base metals experienced a tough year.

Lead lost 9.67% of its value year on year, whilst zinc and nickel lost a whopping 12.29% and 42.71% respectively. Nickel, in particular, took a hit due to a short-term supply surplus caused by reduced demand in China's stainless steel production.

Platinum Group Metals (PGMs)

Equally notable, is the collapse in PGM prices in 2023. After a strong rally in the previous three years, a sudden drop in demand from the automotive industry for catalytic converters, the…

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John LA

28th Dec '23

couldn't agree with more, its interesting that volcano eruptions in Iceland are pouring tonnes of CO more than enough to wipe out any CO saving made by the UK.

Keelan Cooper

Hi JSLDUK,

Thank you for your comment!

It does look like we are still some way away from an EV world. A number of governments are actually reducing EV subsidies now, Germany just ended their subsidies ahead of schedule.

I imagine a lot of buyers will now turn their attention back towards petrol/diesel cars as a result. The growing middle class in countries like India is also more likely to go with petrol/diesel cars than EVs.

Could provide a much-needed boost for PGM prices!

mabie41

I have good profit on Glencore and BHP Anglo American a disaster they waste a fortune trying to produce a unproven fertiliser in North York Moors .

Pentago

Thank you for the article; good to see some more focus from Stockopedia on the resource/commodity sector. There has been so much focus on the China (demand) factor through 2023, yet this article correctly notes the restraint shown by companies as they protect balance sheets, focus on investor returns and high grade the restricted investment dollars. The responses to date to the article, or perhaps lack of, truly captures the uncertainty that investors generally have in this space. It is a wonder to me that so many are prepared to pile money back into crypto before taking a longer-term view on the mining stocks, which offer downside protection through balance sheet strength and dividends. OK I get that crypto makes a great momentum play as rates drop and money searches for a new home, but a correction is always imminent with seemly no backstop.

Commodities price on the margin, so whilst the consensus assumes weak demand, the lack of investment to maintain supply and the drawdown of inventories will likely lead to tightening markets in 2024. Ex-growth China still has a huge appetite, however any stimulus should quickly tip the market into supply deficit. I own most of the stocks within the article and have been rotating from US to UK miners given the better performance of the former. I also like Glencore (LON:GLEN) for its ability to trade around solid physical positions. I believe this is a hugely under-owned sector, yet with substantial market weighting, such that any market momentum will force money back into the sector as underweights become rather uncomfortable.

Zipmanpeter

An alternate perspective is that Governments are no longer needing to subsidise EVs as prices are declining as mass market options ie under £30K are coming to market and fears over range (what % drives over 200miles without an hour's rest more than a couple of times a year?) and access to charging decline.

Those with an integrated EV + solar + battery (another £10K of investment) have convenient recharging on their own driveway, lower lifetime costs including financing/repairs plus a way of reducing their home energy costs. The relative cost of EVs is likely to fall sharply over the next 10 years as battery chemistry improves, faster charging becomes commonplace and renewables become a bigger part of the energy mix and energy pricing reflects it.

At the same time existing depreciated ICE factories will need re-tooling and ICE cars will need replacing and the costs of climate change will become more obvious making the subsidies and reliefs for oil & gas harder to sustain.

Older owners like Silver Moon above might be slow to want to change but the same sort of innovation S curve that cars did for horses, CDs for cassettes, and laptops for desktops is underway although it may take another 10 years to really play out as cars last that long before replacing. But look at the currently most advanced markets - US California and China to see what is coming.

As ever, the rate of change will vary by niche but the long term cost and innovation curves for EVs seem unstoppable to me.

FWIW - my current car is a 10yr old ICE vehicle.

Orange Grove

Any thoughts on Antofagasta and Freeport-McMoRan (I hold both) and on Southern Copper?

Ned Kelly

What surprises me in this article is the table of price assumptions provided by Fitch Ratings above which, without exception, shows the prices for all commodities in the table, falling from 2022 to 2026. If this is truly the case, coupled with rising mining costs, then the sector is in real trouble.

Have I misinterpreted this table?

ken mitchell

Ned Kelly.

Commodity price forecasts are to be taken with a large pinch of salt in my experience, and the more so out as far as 2026.

There are also convincing reasons why there could well be a multi year Mining bull market ahead. I covered some of those when starting this thread a few weeks ago:-

https://www.stockopedia.com/co...

Richard Goodwin

29th Dec '23

Not a ZipCar, Zipman?

Epitychia

Very interesting article. I think the mining cycle deserves more attention. Mining goes through booms and busts depending on where we are in the cycle. The silver price for example is very close to cost of production, therefore supply will likely decline, although demand is rising from solar and electric cars.

JSLDUK

Does anyone hold Mineral & Financial Investments (LON:MAFL) here + have any views?
It’s a tiny company but holds more in cash than the market cap looks really cheap but SP has performed poorly not sure what I’m missing?

BenHazz

Not a sector I know much about and never heard of the company, but my first thought after a glance at the stock would be around what they are doing with the money and the lack of communication with shareholders. No buybacks, No Divis, No director purchases and very illiquid. Only a select few would take the risk.

Albertos

Always find it strange.

Keelan's article (which I enjoyed) mentioned copper 12 times but iron ore only 4. Especially in these energy transition days the group think is concentrated on copper and other "green" metals. (But look at what happened to Lithium and Cobalt over the last year).

My poison is iron ore - in fact it is a better indicator of the health of the commodity market than copper in my opinion. The steel requirement of the energy transition will dwarf all other metals.

BHP (LON:BHP) and Rio Tinto (LON:RIO) have set themselves up over the years to dominate extreme low cost production mainly by spending many,many billions of dollars in the Pilbara region of West Australia.

Iron ore has been rising markedly for the last six months or so - I tend to look at Dalian futures. Looks good at the moment for iron ore producers and they have been doing well.

For people that want some exposure to commodities but don't want to research in detail BlackRock World Mining Trust (LON:BRWM) might suit - nicely liquid - normally low % discount (occasionally premium) - top 10 is essentially the worlds biggest quoted miners.

(Currently hold BHP and BRWM)

(Edit. On Fitch price assumptions - in my experience these are not even close when you look at them after the event. In fact, if you look at the iron ore forecast for next year of $95 even now this looks virtually impossible given a current spot of over $140 and May 24 futures of $137.)

Peter171

2nd Jan

I actually hold Sylvania Platinum (LON:SLP) , but my focus is on a shovel and pick operation LMS Capital (LON:LMS) which is making big inroads into the US mining scene without the risks of an exploration coy the big one being price of metals!

STEVEN REDFORD

Some great info here, I've just been doing some research into Empire Metals (LON:EEE) who claim to have discovered the worlds largest titanium mineral deposits.

Maybe one to watch.

Cartman

videos on crux investor and proactive if you want to know more. Pitfield is the main focus but that is ONLY 1 of the 4 prospects in Australia. Very well worth your time to research. I've been in since June 2022.

Thank you so much for the info Cartman, Ill have a dig further. Pardon the pun

Will Marsh

3rd Jan

This is a very helpful and excellent article, thank you very much. I hold a number of the shares mentioned including Centamin, CAML, Shanta and SLP. My one surprise has been that their has not been more take overs in the sector as market caps have reduced substantially. In respect of Shanta though I'm appalled by the recommendation of the board to accept 13.5p, which grossly undervalues the company.

Understand your pain on Shanta Gold (LON:SHG) however there are two sides to this.

The city has ignored it for years, even when recently the prospects seem so good - in fact collapsing the SP recently when the Odey situation played out - lets get cheap shares! Then along comes a bid and everyone's shouting "foul".

The London market is a disaster area and is going to wither on the vine - I don't understand any company seeking a listing here.

A few years back the Russian goldies left one-by-one to cheap deals and I was left aghast (I held most) at the boards' financial advisers advising the boards that the bids were reasonable even though at pitiful premiums just as new major developments were about to come on stream.

The financial institutions in London are the problem .

grb

31st Jan

Glad to see some good sector coverage here - it would be great to have something more regular in the line of the SVCR.

Shanta Gold (LON:SHG) SHG is currently my largest holding, having done pretty well in 2023. I have holdings of plenty of others you mention, but also Anglo Asian Mining (LON:AAZ) and Caledonia Mining (LON:CMCL) amongst others.

One of the key decisions is which end of the profitability scale to go for. A company like Central Asia Metals (LON:CAML) has very low relative production costs, which means it should still make a profit even when the prices for the commodities they produce is low, hence limiting the downside somewhat Perhaps counter-intuitively, a company with high production costs that's currently struggling or failing to make a profit is much more affected by commodity price changes - either one way or the other. So if you believe you know which way the commodity price is going, then it makes sense to buy (or short) the less profitable companies. Personally, I usually prefer to own the low-cost producers.

One pretty obviously binary bet is Ferrexpo (LON:FXPO) - depending on how the war in Ukraine plays out.

Digging Deeper - A Review of the Mining Sector in 2023

Introduction

A Year in Review - 2023

Precious Metals

Base Metals

Platinum Group Metals (PGMs)

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About the Author

Keelan Cooper

23 comments

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