At a recent Metals Investor Forum webinar, Joe Mazumdar of Exploration Insights talked about the risks and opportunities in the mining sector.
Market volatility is at its highest point in recent history, with countries around the globe focused on fighting the coronavirus pandemic and investors flying to safe haven assets.
At a recent Metals Investor Forum webinar, Joe Mazumdar of Exploration Insights talked about the risks and opportunities in the mining sector, and why investors should not fear “the reaper.”
Mazumdar explained why he was bullish on precious metals pre-COVID-19, saying that one of the underlying reasons was the US$13 trillion of negative-yielding debt. He was also focused on metals like copper, nickel and palladium due to the trend in reducing global emissions.
Copper prices started the year trading at US$6,165 per tonne, making their way up to a first-quarter high of US$6,300. But as the coronavirus spread outside of its initial epicenter in China, prices started to plummet, reaching a Q1 low of US$4,617.50.
“Particularly for copper, my main idea was looking for a project that would fit this 2023 to 2025 window in terms of deficits,” Mazumdar said, adding that there is a lack of quality copper projects to feed the pipeline of demand. “That’s why we have exposure to Trilogy Metals (TSX:TMQ), which has a joint venture with South32 (ASX:S32),” he commented.
Looking over to the nickel market, Mazumdar said he is interested in the metal because of the way battery technology for electric vehicles is changing. The increase of nickel in cathodes has led the Exploration Insights team to choose ASX-listed Blackstone Minerals (ASX:BSX) to be part of its portfolio.
Although COVID-19 was still centered on China at the beginning of March, the world had started to feel its impact, said Mazumdar, because it was affecting the Asian country’s role in commodities.
“The difference between 2003 when SARS happened and 2018 was the size of China’s economy, with its GDP going from US$1.6 trillion to US$13.6 trillion,” he said. “But as important is China’s impact on the global market … their reach is much bigger than it was during the SARS epidemic.”
Now COVID-19 is not only about China, and the country the market is worried about the most is the US.
Showing data from JPMorgan (NYSE:JPM), Mazumdar said it is expected that in the next two years, the cumulative economic loss to 2021 could be US$5 trillion, the size of Japan’s GDP.
“It seems like a recession is the most likely scenario,” Mazumdar said. “The bigger worry, but lower probability, is that this keeps going longer.” In that case, the outcome would be a depression.
According to Mazumdar, volatility is at the highest it has ever been, much higher than in 2008, which is driving demand for safe haven assets — but the big issue has been industrial production and activity, which has pushed base metals prices down.
When looking at base metals companies, Mazumdar explained that there’s a window where there’s not enough production to meet future demand, and those new projects have to come in now.
“(The current circumstances) spring-load much more the situation to 2023 to 2025, considering some of the projects people are talking about are not coming as fast. But if you look at the forecast you need a significant proportion of uncommitted capital to just get the market balanced by 2025, which now they are not even committing to the committed stuff,” he said.
Another issue COVID-19 has exposed is supply chains, according to the Exploration Insights co-editor.
“Not only supply chains in the sense of getting goods and services into a mine, but also production lines, people wanting their copper closer or their lithium closer … there might be an issue with getting more premium for something that is local in the future,” he said.
But which stocks is Mazumdar interested in right now? “Those that are not spending money on construction, those that are doing the light work, looking for financing. Those are the ones that I am invested in, the ones that are well-funded to permit, well-funded to advance, but not in peak construction,” he said.
Of course, Mazudmar also likes the exploration side of the mining industry, which he said is very commodity-agnostic — it’s about discovery.
Metals Investor Forum also recently held a webinar featuring Jay Taylor, Eric Coffin, Gwen Preston and Brien Lundin — click here to learn what they said.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Blackstone Minerals is a client of the Investing News Network. This article is not paid-for content.