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Key Junior Resource Themes in 2019

“Without the element of uncertainty, the bringing off of even the greatest business triumph would be dull, routine, and eminently unsatisfying.” – John Paul Getty

Sentiment

The junior resource sector is all about sentiment, which is typically influenced by a range of factors such as commodity prices (a good gauge of underlying demand), the ability of resource companies to access funding (and conduct meaningful activity), and China’s appetite for raw materials (by far the biggest consumer of most commodities). During 2019 investors can expect more uncertainty, although commodity markets appear to have already digested most of the potentially bad news, with positive signals emerging.

Weaker Dollar

A weaker US dollar is great news for commodities, as all commodities are priced in US dollars, so when the value of the US currency rises, commodities become more expensive in terms of other currencies, which in turn can negatively impact demand. Correspondingly, a softer US dollar is great news for commodities, as it makes them cheaper for buyers in other currencies.

Interest Rates

Gold fell victim to US dollar strength caused by rising US interest rates over the past three years, but the yellow metal is now recovering strongly as US dollar strength wanes on the likelihood of a much slower pace of interest rate increases by the US Federal Reserve. With the US Fed becoming more cautious on interest rates, we are likely to see price momentum build within the commodity space generally.

Trade Talks

The USA and China are currently involved in trade negotiations that aim to generate a positive outcome for both sides. My view is that the ongoing talks between Presidents Trump and Xi will ultimately likely ease tensions and remove all of the major impediments to trade. Both leaders would stand to gain significantly from a political standpoint from such a deal. Any substantial trade deal would be big news for commodities.

Copper & Nickel

With respect to base metals, nickel and copper appear to be the stand-outs.

Nickel is poised to recover after a somewhat misplaced fear of ultra-cheap battery-grade nickel flooding the market. The history of High-Pressure-Acid-Leaching (HPAL) projects is problematic to say the least and the amount of nickel produced could well be less than half what the market is anticipating and at far higher cost. The bottom-line is that the nickel market is looking at another supply deficit for this year and in 2020. LME nickel inventories fell by 44% in 2018 and just recently fell through the 200,000-tonne mark for the first time since 2013.

Copper is a crucial commodity because it’s utilised in an enormous variety of applications - from the construction industry to motor vehicles, from household electrical goods to energy transmission. Hence, it’s the world’s key industrial metal in terms of both volume and its influence on world markets. Inventories on the LME have declined steadily since early 2018 and recently hit a low of 120k tons - almost 265k tons or 70% below their level in March 2018. In fact, LME copper inventories are currently at their lowest level since at least 2008.

Uranium

It’s been a long time coming for the sector, after several global events, including the Fukushima nuclear disaster and Kazakhstan ramping up uranium production, tipped the uranium market into oversupply during 2011. A gruelling seven-year bear market that dragged the uranium price down by 85%, green shoots are now emerging with the uranium spot price soaring almost 40% since April 2018.