How do you land this thing?
Commodity Outlook
Following the dismal price performance in 2015, we expect a modest improvement in 2016: We expect
an improvement in global economic growth, combined with ongoing production curtailments, to lead
to a bottom in non-precious metal commodity prices in 2016 and a gradual improvement in prices
beginning in 2017.
Downward revisions to our economic growth assumptions and continued commodity price declines
result in significant price forecast downgrades:
• Base metal downgrades significant; an 18% decrease in our average Ni price forecast, an 11% decrease
in Zn, a 14% decrease in Cu, and a 12% decrease in Al.
• Bulk commodity price revisions more modest; a 19% decrease in our average coking coal price
forecast, a 10% decrease in iron ore, and an 8% decrease for thermal coal.
• Substantive cuts to PGM and titanium feedstock prices also.
• Uranium price forecasts unchanged.
Equity Outlook
We are in the seasonally strongest period of the year for global non-precious metals mining shares
and the commodities.
At a 39.6% discount to NAV at our forecast prices, the shares appear very attractive trading at trough
of cycle valuations: At the same time, the shares finally represent good value relative to the underlying
commodities, trading at an 18.9% discount to NAV at forward curve prices.
Investment Recommendations
We continue to recommend a cautious approach, but look for trading opportunities: We recommend
generalist investors hold an underweight position in non-precious metals mining shares and focus on
companies with strong balance sheets and solid funding positions. Attractive valuations and strong
seasonality, combined with a modest improvement on the macroeconomic front, could drive a seasonal
rally. However, any improvement in share prices may have to wait until after the tax loss selling season
in late December or early January again this year.
Preferred commodities: Our preferred commodities based on our 2016 price forecasts are zinc, nickel
and uranium, and based on our five-year forecasts are nickel, zinc, and iron ore.
Recommended Shares:
• Australia: Western Areas
• Europe: Anglo Pacific, Sierra Rutile, Tronox
• Global Diversifieds: Teck
• North America: Lundin Mining, Ivanhoe, Labrador Iron Ore, Cameco, Uranium Participation Corp.
• PGM’s: Impala Platinum, Platinum Group Metals