Markets & Metals Navigator: Green Metals Boom – Copper & Vanadium

Gold and Silver Lag Out of the Gate in 2021

It has been strong start to the year for stocks and commodities. The tech heavy Nasdaq is up 5% and the S&P 500 is up 2%; while copper is up 3% and oil is up 8%.

Bitcoin swung hard for the fences the first week of trading in 2021, up over 30%, however has since settled down and is now up 9% YTD.

Year-to-Date Asset Performance

Gold and silver have been the laggards, down -2% and -4% respectively YTD.  Both metals however showed some life last week as silver rallied 3% and gold was up 1.5%.

There’s no question at some level Bitcoin has taken a lot of the “inflation hedge” spotlight away from gold and silver; however we believe that the unprecedented level of monetary stimulus from central banks globally will ultimately lift all “inflationary levered” boats.

Gold mining companies now trade at historic trough P/CF valuation at 7x Price-to-Cash Flow despite the gold price north of $1,800.

Social Benefits & Inflation

Goldman Sachs presented one of the most compelling charts that suggests we’re about to be hit with significant commodity price inflation. The chart goes back to 1965 and it looks at growth in government social benefit payments to persons vs. the 5 year rolling return of a equally weighted commodity basket.

It’s clear there’s a high correlation between the two data series, and due to COVID-19 we’ve witnessed one of the most significant spikes to government payments to individuals.  Now that the Democrats in control of the House and Senate in the US we can expect the payments to individuals to continue to flow at a greater rate.

Serious commodity inflation is just a matter of time. Stay long: copper, gold, silver and bitcoin.

Copper: Sierra Metals – Strong 2020 Production & Bullish 2021 Guidance

Last week Sierra Metals (NYSE:SMTS, TSE:SMT) announced their 2020 full year production results along with production and EBITDA growth guidance.

Despite COVID-19 creating one of the most challenging operating environments for mining companies Sierra Metals as able to achieve strong full year 2020 results – production was up 6% year-over-year to 118.2 million copper equivalent pounds.

The company also announced a very bullish production and profitability outlook for 2021:

• 2021 production guidance of between 130.0 – 141.0 million copper equivalent pounds, at the midpoint this implies a production growth of 14.4% from 2020.
• 2021 EBITDA guidance at current spot prices is anticipated to be between $170 – $185 million, at the midpoint it implies an increase of 74% versus 2020 EBITDA consensus forecast (source: Bloomberg).

Sierra Metals is one of the most attractive copper mining companies globally, the company trades at a deep discount to its peers and has one of the highest prospective production growth rates in the industry.  In an era of high electric vehicle adoption – copper is poised to be one of the most attractive green commodities.

Additionally, the company is undertaking a strategic asset review to maximize shareholder value – we believe there are multiple pathways for management to unlock value for investors.

Vanadium: Largo Resources Delivers Record 2020 Production Results

In October of 2020 Capital 10X highlighted one of the most attractive green metals – vanadium, a metal used for industrial efficiency and battery storage.  In our initiation report we highlighted Largo Resources (TSE:LGO) as one of the best positioned vanadium producers – high grade with one of the lowest costs in the industry.

On January 20th Largo Resources announced stellar full year 2020 operational results, delivering record V205 production, up 12% year-over-year to 11,825 tonnes; and a record recovery rate of 81.4%, an increase of 4% from the previous year.

The company also provided investors 2021 operational guidance that was geared to growth.

• V205 production for 2021 will be between 12,000 and 12,500 tonnes.
• And V205 equivalent sales will be in the range of 12,250 and 12,750 tonnes.

Additionally, a key focus in 2021 for the company is the advancement of Largo Clean Energy and its VCHARGE± battery technology for the high growth renewable energy storage sector.

We believe 2021 is shaping up to be a very promising year for the green economy and we believe vanadium is one of the most underappreciated green metals, Largo Resources is one of the few attractive well run pure-plays on this theme.

Largo Inc. is a market awareness client of Capital 10X.

Sierra Metals is a market awareness client of Capital 10X.