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Performance
The
Company’s NAV fell by 1.2% in November 2024, outperforming its
reference index, the MSCI ACWI Metals and Mining 30% Buffer 10/40
Index (net return) which declined by 2.5% (performance figures in
GBP).
November 2024 was
a challenging month for the mining sector, which underperformed
broader equity markets represented by the MSCI All Country World
Index, which returned 3.7%. The mining sector experienced
volatility as Donald Trump’s US election victory increased
uncertainty around future trade tensions with China. The election
result also led to outperformance from US stocks, including US
mining companies. Meanwhile, stimulus measures announced by China
had an underwhelming effect on commodity demand
expectations.
Performance in
the commodities space was mixed, with iron ore (62% Fe) and nickel
prices rising by 1.0% and 1.4% respectively, whilst copper fell by
5.1%.
In
the precious metals space, gold and silver prices fell by 3.0% and
8.0% respectively, as the US dollar strengthened significantly
following Trump's election, creating a headwind.
Uranium
supply-side risk increased as Russia announced temporary
restrictions on the export of enriched uranium to the US.
Additionally, technology hyperscalers have expressed a preference
for nuclear energy to power their artificial intelligence (AI) data
centers, boosting sentiment for uranium and uranium mining
companies. Increasing global demand for nuclear energy and
significant supply constraints could lead to a tighter market in
the coming years.
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 mergers and acquisitions 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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