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Performance
The
Company’s NAV fell by 1.2% in October, outperforming its reference
index, the MSCI ACWI Metals and Mining 30% Buffer 10/40 Index (net
return), which declined by 2.3% (performance figures in
GBP).
The
mining sector had mixed performance in October 2024, as a lack of
detail on China’s stimulus measures weighed on commodities. For
reference, global equity markets, as measured by the MSCI ACWI TR
Index, returned -2.2%.
In
the commodities space, iron ore (62% fe), copper and nickel fell by
7.3%, 3.3% and 10.5% respectively.
The
aluminium price held up better, down by just 0.7%, as supply was
disrupted by port issues at Jamalco and as future supply looked set
to be increasingly constrained by Alcoa announcing the curtailment
of its Kwinana alumina refinery in Western Australia.
In
the precious metals space, gold and silver prices rose by 4.1% and
4.8% respectively, appearing to benefit from ‘safe-haven’ demand as
a result of ongoing geopolitical tensions in the Middle East and
the approaching U.S. presidential election.
Finally, we saw
more technology hyperscalers, indicating a preference for nuclear
to power their artificial intelligence (AI) datacentres, which
lifted sentiment on uranium and uranium miners.
Strategy
and Outlook
Near
term, we expect performance to be driven by the China stimulus
situation, which is evolving, and we are watching closely to see if
it translates into a pickup in demand. Longer term, we expect mined
commodity demand growth to be driven by increased global
infrastructure build out, particularly related to the low carbon
transition and increased power demand.
Meanwhile, the
supply side of the equation is constrained. Mining companies have
focused on capital discipline in recent years, meaning they have
opted to pay down debt, reduce costs and return capital to
shareholders, rather than investing in production growth. This is
limiting new supply coming online and there is unlikely to be a
quick fix, given the time lags involved in investing in new mining
projects. The cost of new projects has also risen significantly and
recent M&A activity in the sector suggests that, like us,
strategic buyers see an opportunity in existing assets in the
listed market currently trading well below replacement costs. Other
issues restricting supply include cases of governments closing
mines, permitting issues and a general lack of shovel-ready
projects. Turning to the companies, balance sheets in the sector
are very strong relative to history. Despite this, valuations are
low relative to historic averages and relative to broader equity
markets.
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