What is the outlook for base metals production for 2019?
John Meyer: Well there is definitely a lack of new mines coming into play, particularly in copper. But in fact, we can look across all the metals, and they haven’t been discovering mines as they used to – they haven’t been financing them, they haven’t been building them, so there’s this long-term problem sort of building itself up.
Which base metal is least exposed to a slowdown in China?
John Meyer:
We’ve talked about the fundamentals and, as an analyst, I love to work off the fundamentals. I think that the short-term moves that we are seeing at the moment are a result of the weaponisation of copper – similar to the weaponisation of oil – and the base metals outlook could be similar. I would still look to tin, zinc and nickel, but let’s put aside copper and aluminium now because I think there are other forces working on them.
It’s very hard to find new tin supply. So where are we going to get the tin from? Rio Tinto put out a report a year or so ago, with work from MIT, which suggested that tin was going to be one of the big success stories in the battery metals revolution – because you need a lot of tin solder to connect all of those batteries and solar cells, and things found on wind farms.
What’s the influence of the high dollar on base metals?
Daniel Lacalle:
Well the dollar is not strengthening – if you look at the chart on a five or ten-year basis, it is basically within the range of the last five years. I’m not concerned about the dollar, I’m concerned about the global slowdown.
This is not because the dollar is strengthening, but because emerging market currencies are devaluing. Too many countries are trying to solve their imbalances through quantitative easing. And we’ve seen this in Turkey and Argentina. If that is happening, there is a much larger effect on demand.
Is there any correlation between the price of oil and base metal prices?
Daniel Lacalle:
There is a strong correlation, which tends to come when the key driver is demand growth. When demand growth is taken for granted, or the focus of investors is on supply challenges, then there are changes in the correlation. But when the whole debate is about demand, then the correlation is very significant. I think that is the reason that the mining companies, who have very little to do with oil, are falling in the stock market – just as much as energy-related stocks.
What stocks are you looking out for in the base metals market?
John Meyer: When it comes down to stock-specific ideas, we love new discoveries, so things like ARC Minerals with copper and cobalt in Zambia. The drill results seem to just get better and better. They’re producing 2-3% copper equivalent – that’s the copper in with the cobalt – and it’s at the surface so very economical.
There is still some risk in there, for instance we don’t know the metallurgical recovery rates. They will hopefully start production late this year or early next year because they have a test trial plant at the site. That’s pretty interesting, that’s an extension on the Zambian Copperbelt which has produced an awful lot of copper over the years.
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