Has confidence in mining returned?

However, with optimism drooping following a Chinese financial-stimulus plan that failed to deliver, how stocks are likely to perform towards the year's end has become anyone's guess.

Gold prices have been tracking between $1893-1942/oz in recent weeks and investors remain bullish about the yellow metal.

Ole Hansen, head of commodity strategy at Saxo, a Danish investment bank, said that any push higher on gold remains dependent on US economic data.

"At Saxo, we maintain a patiently bullish view on gold and silver and see the yellow metal eventually reaching a fresh record in the coming months," Hansen said in a note.

"The timing for a fresh push to the upside, however, will remain very US-economic-data dependent as we wait for the FOMC to turn its focus from rate hikes to cuts, and during this time, as seen recently, the result is likely to be continued choppy trade action."

This is a view supported by fund manager DHF Capital, a Luxembourg-based investor.

"US data on the non-manufacturing sector and on the job market could support the expectations of interest rates remaining at high levels for longer, which could continue to pull gold prices to the downside potentially into next year as well. Jobless claims were lower than expected, supporting the Federal Reserve's narrative for a hawkish policy," Bas Koojiman, chief executive said.

"Gold could also see pressures as the US dollar continues to extend its gains since the middle of July. At the same time, yields on short-term US treasuries remained elevated while yields on their longer-term equivalents continued to rise, drawing investors away from gold," he added.

"Gold has held up well despite higher rates, which the bears would argue should lead to weaker gold. We focus on the flows rather than past correlations, with the main supporting driver having been central bank demand which has remained strong," Robert Crayfourd, CQS Natural Resources Growth and Income Fund, told Mining Journal.

"We expect this to continue as China looks to reduce to its US treasury holding, with gold as a beneficiary of that reallocation. Gold is different from currencies as cannot be restricted by sanctions in the same way, a point that is clear to them post Russia's invasion of Ukraine."

Lithium prices dropping, but enthusiasm not waning

Meanwhile, lithium prices have slipped over the year, trading at $27,644.26/t on September 7, down from $36,000/t at the start of August (lithium carbonate 99.5% battery grade). 

Prices have come a long way since the rally that took place in 2022, but most are confident in the long-term fundamentals.

Chinese companies are investing heavily in lithium companies - in June 2023, Chinese authorities said they would increase investments by $400 million to grow the market's presence in lithium mining in Bolivia. 

"Global lithium supply is expected to enter a deficit relative to demand by 2025, and China-based manufacturers are more likely to seek foreign supply to meet future needs than rely on an accelerated expansion of domestic production given the environmental scrutiny facing new projects and intensive use of water for lithium extraction," a note released by BMI/ Fitch Solutions said. 

"We expect mainland China's lithium production to grow by an average of 6% year-on-year annually over 2023-2032, rising from 21,300t in 2023 to 33,700t in 2032, supported by several new projects, high prices and the huge scale of domestic demand given China's dominant position in battery manufacturing," the note expanded. 

The interest in lithium was perfectly exemplified during this year's Diggers and Dealers conference in Kalgoorlie, Australia.

Data released by organisers showed that lithium companies attending the conference grew from a 4% share in 2018, to 11% in 2023.

Reporting from the event, Kristie Batten, editor of Miningnews.net (a sister title to Mining Journal), said that "while there are more gold companies than lithium companies on the bill (29 versus 11), you wouldn't know it from the interest and buzz around the latter". 

"The forum's first company presenter on Monday, Pilbara Minerals boss Dale Henderson, set the tone when he declared delegates wouldn't see another growth story like Pilbara over the three days.

"The outlook for lithium is looking pretty spectacular," he said."

One delegate even said to Batten that there wasn't a lot of money around - except for lithium companies.

However, AIM data for lithium companies listed indicate that share prices are falling, not rising, with average prices taking a low downward turn post-May 2023 (see graph).

Most companies have failed to keep share prices at the level seen in 2022, or indeed, pre-COVID-19.

"There are a lot of lithium names that have been heavily promoted and seen strong gains. Normally in commodities, that is a bad thing as it means there are lots of options for new supply, but in this case the rapid growth of EV's should be sufficient to keep it balanced but there will be periods of under and oversupply leading to high price volatility," Crayfourd told Mining Journal.

CQS has invested in Sigma and Leo Lithium and said both companies "are examples of top tier geologies".

"They are large, high-grade open pits so will be at the low end of the cost curve, benefiting through the cycles. We prefer hard rock lithium assets given the working capital requirements for brines, which are more prone to ramp up issues," Crayfourd added.  

Precious stones fail to excite

Half-year results from diamond companies suggest that the choppy waters they have found themselves in could well continue into next year.

"Demand was more muted than we had expected in exiting the summer holiday period," Botswana-based Petra Diamonds said.

"As we enter a seasonally stronger period, which includes Diwali, Thanksgiving, Christmas and the Chinese New Year, we remain optimistic that jewellery demand will improve and provide some support to prices over the balance of the calendar year," Petra added.

According to Rapaport diamond news services, the RapNet diamond index for one-carat diamonds fell by 10.9% in the first seven months of the year, having declined by 10.7% in 2022.

"The index is now 1.2% below its pre-Covid level record in January 2020 having wiped out gains made during the (post-Covid) recovery," Rapaport said.

PGMS

In early September, the World Platinum Investment Council released a quarterly report that stated that the group believes there will be a 1.01Moz deficit this year, equating to 12% of forecast full-year demand (see page 20 for the full story).

The WPIC increased its forecast for 2023 demand by 2%, to 8.23Moz, up by 27% year-on-year. Demand from the automotive sector is forecast to climb by 13% from a year ago to 3.28Moz, while industrial demand is expected to increase by 14% to 2.67Moz.

With tight supply out of South Africa, due to excessive load shedding this year and adverse weather conditions affecting output, supply is constrained also. Platinum prices are tracking lower this September, but have swung between $900/oz and $1106/oz this year.

Palladium, meanwhile, has tracked lower since the start of the year and the outlook looks bearish in the short to medium term. Sylvania, the aspiring mid-tier PGM producer, in September said that the palladium and rhodium demand and low-price outlook was due to slower-than-anticipated recovery in ICE vehicle sales.

Base metals

The notable movement in nickel and copper this year is of significant M&A in the space, a trend that is expected to continue. This was highlighted in the International Energy Association's (IEA) review of critical minerals, which was released this year and highlighted Rio Tinto's acquisition of Turquoise Hill Resources ($3.1 billion).

The IEA review included Mongolia's Oyu Tolgoi mine, as well as BHP's acquisition of OZ Minerals ($6.4 billion), which was completed in May 2023. Elsewhere junior Hudbay Minerals secured Copper Mountain Mining for $439million.

Elsewhere, in nickel, the most talked-about deal in 2023 so far was when Appian sold Atlantic Nickel and Mineração Vale Verde (MVV) to ACG for $1 billion, and its gold royalty on MVV to ACG for $65 million.

The deal (which, at the time of writing had still not been finalised) was unusual because it already lined up partnerships with OEMs. ACG entered into long-term investment partnerships with global commodities group Glencore, PowerCo (Volkswagen's in-house battery development subsidiary) and Stellantis (owner of Fiat and Peugeot), for offtake and funding.

However, nickel prices and sentiment has been soft - although most analysts don't expect this to continue, maintaining the fundamentals are strong.

"We are revising down our nickel price forecast for 2023 to $23,500/t from $26,500/t as class-two nickel production volumes rise significantly, pushing the market into deeper surplus." BMI, part of Fitch Solutions, said in a note in July. 

However, the analysts went on to say that they expected global nickel production to increase significantly in 2023 on the back of a ramp-up in Indonesian and mainland Chinese refined nickel output, pressuring prices. 

"In 2024, we expect nickel prices to average $24,500/t, above the 2023 average as demand picks up. Beyond that, we expect nickel prices to increase at a faster pace in 2028, rising to $28,000/t." 

Is the market looking up? 

In the short to medium term, the quickest answer is ‘not really'. Of course, there is ample evidence to suggest that there will be a return to bullishness as fundamentals tighten and demand starts to pick up, and supply falls off in some of the materials discussed. But even with strong economic headwinds and some positive signals, there is a lacklustre sentiment in the markets and some weariness too.

"Sentiment and appetite from financial markets has remained lacklustre despite softening global data, which we think is primarily due to higher rates," Crayfourd said.

"If rate hikes ease or even roll over, we may see more flows in to the physical ETF's, which have been sellers. This could be a constructive back drop for precious metals and especially gold."