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Industry Report – Metals & Mining Fourth Quarter 2021 Review and Outlook

Natural Resources
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Monday, January 3, 2022

Minerals Industry Report

Metals & Mining Fourth Quarter 2021 Review and Outlook

Mark Reichman, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to end of report for Analyst Certification & Disclosures

  • Mining companies post a strong finish. During the fourth quarter, mining companies (as measured by the XME) appreciated 7.3% compared to a gain of 10.6% for the S&P 500 index. The VanEck Vectors Gold Miners (GDX) and Junior Gold Miners (GDXJ) ETFs were up 8.7% and 9.4%, respectively. Gold, silver, copper, and zinc futures prices were up 4.0%, 6.1%, 9.1%, and 8.5%, respectively, while lead was down 2.4%. For the full year, gold and silver prices declined 4.5% and 12.1%, respectively, while copper, lead, and zinc prices were up 26.4%, 21.3%, and 33.6%. Performance in 2021 was driven by base metals equities as underscored by the 33.9% price return on the XME versus -11.1% and -22.7% for the GDX and GDXJ, respectively. The S&P 500 appreciated 26.9%.
  • Outlook for precious metals. The U.S. Dollar Index rose 1.7% during the fourth quarter and 6.4% in 2021. The yield on the 10-year rose modestly during the fourth quarter to 1.51% and was up 59.5 basis points compared to year-end 2020. While a rise in the U.S. dollar and treasury yields are headwinds for gold, we believe investors may view precious metals more favorably in 2022 to protect portfolio values from potential volatility in equity markets, an uncertain path for inflation, and the risk of Federal Reserve monetary policy errors. While the Federal Reserve has signaled that it will end monthly bond purchases in March and could raise interest rates three times in 2022, we think market expectations are partially baked in and investors will likely focus on real interest rates which are expected to remain low.
  • Can industrial metals continue their ascent? While U.S. and global economic growth is expected to moderate and we don’t expect the same level of gains for industrial metals in 2022, cash flow generation should remain strong for industrial metals companies while supply and demand fundamentals remain favorable. Improving supply chains, inventory re-stocking, and greater capital spending could be supportive of pricing, and we believe the long-term investment case for owning industrial metals mining companies remains favorable. Weaker growth abroad, particularly in China, remains a near-term threat.
  • Putting it all together. We remain constructive on the Metals and Mining sector. While precious metals underperformed industrial metals in 2021, we believe precious metals mining equities could outperform in 2022. Valuations, particularly among junior companies, remain attractive while current gold and silver prices are sufficient to be profitable. Additionally, we are beginning to observe an increase in M&A activity which highlight value in the sector based on acquisition premiums.

GENERAL DISCLAIMERS

All statements or opinions contained herein that include the words “we”, “us”, or “our” are solely the responsibility of Noble Capital Markets, Inc.(“Noble”) and do not necessarily reflect statements or opinions expressed by any person or party affiliated with the company mentioned in this report. Any opinions expressed herein are subject to change without notice. All information provided herein is based on public and non-public information believed to be accurate and reliable, but is not necessarily complete and cannot be guaranteed. No judgment is hereby expressed or should be implied as to the suitability of any security described herein for any specific investor or any specific investment portfolio. The decision to undertake any investment regarding the security mentioned herein should be made by each reader of this publication based on its own appraisal of the implications and risks of such decision.

This publication is intended for information purposes only and shall not constitute an offer to buy/sell or the solicitation of an offer to buy/sell any security mentioned in this report, nor shall there be any sale of the security herein in any state or domicile in which said offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or domicile. This publication and all information, comments, statements or opinions contained or expressed herein are applicable only as of the date of this publication and subject to change without prior notice. Past performance is not indicative of future results. Noble accepts no liability for loss arising from the use of the material in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to Noble. This report is not to be relied upon as a substitute for the exercising of independent judgement. Noble may have published, and may in the future publish, other research reports that are inconsistent with, and reach different conclusions from, the information provided in this report. Noble is under no obligation to bring to the attention of any recipient of this report, any past or future reports. Investors should only consider this report as single factor in making an investment decision.


IMPORTANT DISCLOSURES

This publication is confidential for the information of the addressee only and may not be reproduced in whole or in part, copies circulated, or discussed to another party, without the written consent of Noble Capital Markets, Inc. (“Noble”). Noble seeks to update its research as appropriate, but may be unable to do so based upon various regulatory constraints. Research reports are not published at regular intervals; publication times and dates are based upon the analyst’s judgement. Noble professionals including traders, salespeople and investment bankers may provide written or oral market commentary, or discuss trading strategies to Noble clients and the Noble proprietary trading desk that reflect opinions that are contrary to the opinions expressed in this research report.
The majority of companies that Noble follows are emerging growth companies. Securities in these companies involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Noble research reports may not be suitable for some investors and as such, investors must take extra care and make their own determination of the appropriateness of an investment based upon risk tolerance, investment objectives and financial status.

Company Specific Disclosures

The following disclosures relate to relationships between Noble and the company (the “Company”) covered by the Noble Research Division and referred to in this research report.
Noble is not a market maker in any of the companies mentioned in this report. Noble intends to seek compensation for investment banking services and non-investment banking services (securities and non-securities related) with any or all of the companies mentioned in this report within the next 3 months

ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE

Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis.
Named WSJ ‘Best on the Street’ Analyst and Forbes/StarMine’s “Best Brokerage Analyst.”
FINRA licenses 7, 24, 63, 87

WARNING

This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to Noble Capital Markets, Inc. by an investment advisor, that advisor may receive a benefit in respect of
transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by Noble Capital Markets, Inc. This report may not be reproduced, distributed or published for any purpose unless authorized by Noble Capital Markets, Inc.

RESEARCH ANALYST CERTIFICATION

Independence Of View
All views expressed in this report accurately reflect my personal views about the subject securities or issuers.

Receipt of Compensation
No part of my compensation was, is, or will be directly or indirectly related to any specific recommendations or views expressed in the public appearance and/or research report.

Ownership and Material Conflicts of Interest
Neither I nor anybody in my household has a financial interest in the securities of the subject company or any other company mentioned in this report.

NOBLE RATINGS DEFINITIONS
% OF SECURITIES COVERED
% IB CLIENTS
Outperform: potential return is >15% above the current price
93%
32%
Market Perform: potential return is -15% to 15% of the current price
7%
4%
Underperform: potential return is >15% below the current price
0%
0%

NOTE: On August 20, 2018, Noble Capital Markets, Inc. changed the terminology of its ratings (as shown above) from “Buy” to “Outperform”, from “Hold” to “Market Perform” and from “Sell” to “Underperform.” The percentage relationships, as compared to current price (definitions), have remained the same. Additional information is available upon request. Any recipient of this report that wishes further information regarding the subject company or the disclosure information mentioned herein, should contact Noble Capital Markets, Inc. by mail or phone.

Noble Capital Markets, Inc.
150 East Palmetto Park Rd, Suite 110
Boca Raton, FL 33432
561-994-1191

Noble Capital Markets, Inc. is a FINRA (Financial Industry Regulatory Authority) registered broker/dealer.
Noble Capital Markets, Inc. is an MSRB (Municipal Securities Rulemaking Board) registered broker/dealer.
Member – SIPC (Securities Investor Protection Corporation)

Report ID: 24361
Metals & Mining | January 3, 2022
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