RBC Notes RBC mining equity analyst Sam Crittenden: “We’re into the bad news is good news part of the cycle and USD weakness in anticipation of slowing Fed rate hikes is supporting commodity prices; however, at some point the resulting slower growth is likely to impact demand,” said Mr. Crittenden. “We see China’s recovery supporting metals demand this year despite potential for a recession elsewhere. Base metals don’t typically fare well through a recession but given continued tight markets with low inventories and ongoing supply disruptions, prices could remain elevated with upside risk if economic conditions remain strong. We are more cautious on the bulk commodities as the outlook for steel demand is lackluster, in our view. Supply disruptions have kept iron ore and met coal elevated but both could fade as supply normalizes. On the other hand, equity valuations for copper miners could be underpinned by a pickup in M&A activity and a positive medium term outlook.”
In selecting his recommended North American equities, he said: “First Quantum can generate strong FCF to fund organic growth. Ivanhoe’s KamoaKakula copper is demonstrating its world-class potential. Capstone can re-rate as they execute on near term growth. Champion Iron has strong growth as phase 2 ramps up.”