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The
Company’s NAV rose by 4.4% in January 2025, underperforming its
reference index, the MSCI ACWI Metals and Mining 30% Buffer 10/40
Index (net return) which increased by 6.2% (performance figures in
GBP).
January was a
positive month for the mining sector, outperforming broader equity
markets represented by the MSCI All Country World Index, which
increased by 3.4%. Activity levels in China remain generally low;
while we await the impact from stimulus measures, we do not expect
a significant improvement. For reference, China’s manufacturing PMI
fell to 49.1 from 50.1 in January 2025.
Investor concerns
over the potential impact of U.S. tariffs on global economic
growth, coupled with the likelihood of retaliatory measures, have
led many to divest from their copper equity holdings. The steel
market in Asia is facing challenging conditions and low margins,
while prices in the U.S. are beginning to rise in anticipation of
tariffs, which could benefit U.S. based steel companies. The launch
of DeepSeek, a cost-effective large language model from China, has
sparked a selloff in copper and uranium stocks as investors
anticipate reduced energy demand from data centres.
Performance in
the commodities space was mixed, with iron ore (62% Fe) and copper
prices rising by 4.5% and 3.2% respectively, whilst the nickel
price fell by 0.7%.
In
the precious metals space, gold and silver prices rose by 7.0% and
6.0% respectively, being supported by heightened public concern
regarding the U.S. fiscal deficit and escalating national
debt.
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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