Gold Pullback Marks the Start of a Stronger Bull Market, says Adshead-Bell

Key Concepts

Gold Market Dynamics: Pullbacks in bull markets are healthy, long-term upward trends are expected, and investment decisions are easier in less frothy environments.
Tax Loss Selling: A seasonal phenomenon that can impact stock prices, but its effect may be limited in a strong year for precious metals.
Gold Demand Trends: Record quarterly demand driven by investment and central bank purchases, with mine production also increasing.
Fiat Currency Risk: Growing awareness of the inherent risks in fiat currencies due to government debt and money printing.
Perpetra Resources & Stibnite Project: Significant investment from Agnico Eagle Mines and JP Morgan Chase in a US gold project with antimony byproduct.
Agnico Eagle Mines: A consistent outperformer known for building trust and trading at a premium, with a clear strategy and a history of corporate investments.
JP Morgan Chase Investment: Signifies institutional money looking at the mining space, potentially backstopped by government initiatives for critical minerals.
M&A in Mining: Anticipation of increased mergers and acquisitions, driven by companies following successful strategies of peers.
Third Quarter Earnings: Strong performance from Agnico and New Gold, highlighting the benefits of capital discipline and cost management.
Newmont vs. New Gold: Differences in asset base, company size, and strategic focus contributing to varying performance.
Barrick Mining Strategy: Potential for splitting the company into "good" and "bad" Barrick, or separating assets by political jurisdiction.
Guyana as a Mining Jurisdiction: Attractive geology, underexplored potential, infrastructure development due to oil and gas, and efficient government processes.
Nuclear Power and Uranium: Strategic partnership to accelerate nuclear power development, $80 billion in new reactors, and a widening gap between uranium supply and demand.
Uranium Incentive Price: The need for a materially higher incentive price to meet forecast demand, driven by government commitment and sensible permitting.
Copper Market Fundamentals: Projected shortfall in primary supply by 2025, exacerbated by technical issues and project delays, with expanding demand.
Copper Incentive Price: The current $5/lb is insufficient to incentivize new large-scale copper project development, with a higher price needed.
Glencore's Copper Production: A significant decrease in copper production, highlighting the potential missed opportunity in a rising copper price environment.
Cobre Panama Mine: The potential economic impact of its closure and the factors influencing its potential restart, emphasizing the need for local and government support.
Alumbrera Copper-Gold Project: Potential for M&A synergies with nearby projects, highlighting the need for sensible consolidation in the copper space.
Junior Developer Strategy: Forming a "cartel of future supply" to attract higher valuations from large companies.

Gold Market Analysis and Investment Strategy

1. Gold Price Trends and Market Sentiment:

The gold market is experiencing a bull market, characterized by an upward trend.
A recent 10% pullback in gold prices is considered a healthy correction rather than a sign of weakness.
Nicole Adel of Koopal Advisory emphasizes that bull markets are not always a straight line up; sharp, perpendicular rises can be sell signals.
She finds it easier to make investment decisions in a market with pullbacks, as it allows for a more rational approach compared to short-term momentum-driven markets.
Adel believes prices may decline further but are in a long-term upward trend for the next couple of years.

2. Investment Philosophy in Volatile Markets:

Adel's personal preference is for "deep value" and "bargains," but she cautions that value may not always materialize if management is incapable of extracting it.
She advocates for a rational approach, stepping back from the "overt froth" of rapidly rising charts.
When share prices get ahead of fundamental changes, a "slight fear factor" can lead to profit-taking, driven by fear rather than fundamental shifts.
Her strategy involves buying dips in assets she has already identified, taking a longer-term view, and being cognizant of risks while willing to tolerate dips.
She advises against panic buying and panic selling, as these rarely lead to long-term outperformance.

3. Tax Loss Selling Season:

In Canada, November marks the start of tax loss selling season.
Adel notes that the best time to buy is typically in the last week of December.
However, she believes tax loss selling will have a less significant impact this year due to the strong performance of most precious metal companies, meaning fewer investors will have substantial losses to monetize.
The exception might be those who bought in the last couple of months and are experiencing a downdraft.

4. World Gold Council Q3 Demand Report:

Record quarterly gold demand of 1,313 tons (approximately $146 billion USD).
Investment demand was the primary driver, increasing by 47% year-on-year and accounting for 55% of net gold demand.
Gold ETFs added 222 tons in Q3, with global inflows reaching $26 billion USD. Year-to-date, ETFs have added 619 tons.
Central banks continued strong net purchases, totaling 220 tons in Q3, up 10% year-on-year.
Total gold supply also reached a quarterly record of 1,313 tons, with mine production up 2% year-on-year to 977 tons.

5. Underlying Drivers of Gold Demand:

Adel attributes the continued trend to a "sudden realization" among economists and the public about the risk associated with fiat currencies.
She highlights that currencies are backed by faith, and many countries are materially in debt, with governments printing money and persistent inflation (evidenced by rising egg prices).
This environment of uncertainty and moving pieces favors gold's outperformance.
She notes the shift from articles about the "death of gold" 18 months ago to the current renewed interest driven by price momentum.

Gold Stocks and Corporate Investments

1. Perpetra Resources and the Stibnite Project:

Perpetra Resources (formerly Midas Gold) received a $180 million investment from Agnico Eagle Mines and $75 million from JP Morgan Chase.
This financing occurred after Perpetra broke ground on its Stibnite gold project in Idaho, USA.
Agnico acquired a 6.5% stake, and JP Morgan acquired a 2.7% stake.
The Stibnite project is projected to produce approximately 300,000 ounces of gold per year, with over 450,000 ounces annually in its first four years, along with a significant amount of antimony.
Barrick Gold previously held a 19% stake until 2022.

2. Agnico Eagle Mines' Investment Rationale:

Agnico is recognized as a consistent outperformer that builds trust with investors, often trading at a premium.
Adel views Agnico as having a clear strategy and being a company investors can "sleep at night" with.
The Stibnite project is described as a "great asset" with a long-lived profile and strong production.
A key hurdle for Stibnite has been the permitting lag, which Agnico's involvement may help overcome.
Agnico has a pattern of making corporate investments, not necessarily leading to takeovers, demonstrating a rational approach.
This investment suggests Agnico has conducted material due diligence and sees potential for long-term ownership.

3. JP Morgan Chase's Investment and Institutional Money:

JP Morgan's investment aligns with their 10-year, $1.5 trillion security and resiliency initiative to finance critical industries.
The presence of antimony as a byproduct in Stibnite is relevant to this initiative.
Adel believes this signifies big institutional money looking for a home in the mining space.
However, she cautions that big institutional money may not be well-educated about the mining sector.
She views JP Morgan's approach as low-risk due to clear signals and material government dollars being directed towards critical mineral development by the US government.
This move reflects a shift from globalization to isolationist behavior, with governments securing supply chains for raw materials.

4. Major Gold Producers' Investment Behavior:

Adel finds it odd that Agnico is investing in Perpetra while other major US gold producers like Barrick, Newmont, and Kinross are not making similar investments.
She attributes Barrick's previous exit and current non-involvement to ego and exiting at the wrong time.
Potential leadership changes at Barrick might also influence strategic decisions.
She notes that companies often follow the behavior of their peers, suggesting that the next leg of the market will be driven by M&A and the anticipation of M&A.

Third Quarter Earnings and Company Performance

1. Agnico Eagle Mines' Q3 Results:

Reported $1 billion in net earnings for the third quarter.
Cash pile swelled to $2.4 billion.
Debt reduced to $196 million.

2. New Gold's Q3 Performance:

Reported $142.3 million in net earnings, a 275% increase year-on-year.
Production jumped 35% to 115,000 ounces of gold and 12 million pounds of copper, equating to a record 130,000 gold equivalent ounces.
All-in sustaining costs (AISC) decreased by 31% to $966 per ounce, described as sector-leading.
This resulted in a 73% margin, approximately $2,500 per ounce.
Generated a record $25 million in free cash flow, which helped pay down $260 million of long-term debt.

3. Newmont vs. New Gold Performance:

Adel attributes New Gold's impressive performance to several factors:
- Different asset base and smaller company size, making management easier.
- Focus on capital discipline and costs, aligning with the current gold price run.
- Timing, with their strategy coming into a "sweet spot" as gold prices surged.
Newmont, a larger company, faces challenges with embedding costs, process over productivity, and being less nimble.
Larger companies are described as "beasts" that are harder to manage efficiently.
Adel predicts that as the cycle matures, generalists will enter the market, initially buying large, liquid companies (Newmont, Barrick, Agnico, Kinross) and then moving to smaller companies for higher "talkiness" and less bureaucracy.

Barrick Mining and Strategic Considerations

1. Potential Company Split:

A news report suggests the next CEO of Barrick Mining might consider splitting the company.
The proposed split is into "good Barrick" and "bad Barrick," or separating assets by safe political jurisdiction versus more challenging ones.
Adel believes there would be strategic reasons for such a split.
In a bull market, higher-risk, higher-capital-cost assets offer more optionality but also more downside risk when the market turns.

2. Strategic Rationale for a Split:

The most sensible strategic reason would be a true merging of "safe Barrick" with Newmont's North American assets, creating a company appealing to the US investing class.
Adel believes such a move is unlikely until a new management team is in place.
The new leader may need to mend fences and clearly message Barrick's strategy.

3. Barrick's Evolving Strategy and Messaging:

Adel points to Barrick's evolution, including a focus on copper and removing "gold" from its name just as the market is favoring gold.
She argues this may not have been the best decision, and the company's strategy has been potentially confusing to investors.
There is an opportunity to build a new, "perfect company" by re-evaluating its structure and strategy.
The status quo is not seen as positive in the current gold price environment.

Guyana: A Heating Mining Jurisdiction

1. Increasing Gold Development Activity:

Guyana is described as a jurisdiction that is "really heating up."
Aris Mining announced a Preliminary Economic Assessment (PEA) for its Toroparu gold project, projecting 235,000 ounces of gold per year for 21 years at an AISC of $1,300 USD/oz, plus silver and copper. They are initiating a Pre-Feasibility Study (PFS).
G Mining Venture has begun construction of its Ok West project.
G2 Goldfields and Oh My Gold are also rapidly advancing their projects.

2. Reasons for Guyana's Attractiveness:

Unbelievable geology and underexplored potential compared to other jurisdictions.
Challenges of Amazon jungle, infrastructure, and access are being mitigated by the economic boom from oil and gas discoveries.
Government's ability to get things done efficiently, from discovery to production and permitting, which is a significant advantage over "safe jurisdictions" like Australia and Canada.
A sensible government that understands the economic benefits of natural resource investment.
The ability to take advantage of record high gold prices due to faster project development.

3. Barrick's Exit from Guyana:

Adel believes Barrick made a mistake by exiting Guyana.
She notes that people tend not to go back to things they walk away from.

4. Guyana's President and Energy Policy:

The Guyanese president was re-elected and is expected to remain in office for several more years.
He has been a strong advocate for economic development, pushing back against the "net zero narrative" and acknowledging cheap power as a key driver of civilization and economic activity.
His stance on developing oil and gas, while also supporting resource development, is seen as pragmatic.

Nuclear Power and Uranium Market Outlook

1. US Government Strategic Partnership for Nuclear Power:

Westinghouse Electric, Cameco, and Brookfield Asset Management have entered a strategic partnership with the US government to accelerate nuclear power station development.
This partnership includes at least $80 billion USD for new reactors to revitalize the US nuclear power industrial base.
This is seen as a "big shot in the arm" for the North American uranium sector.

2. Benefits for the Uranium Sector:

Adel predicts the uranium price will go up due to committed demand and a widening gap between primary production and forecast needs.
She advocates for global adoption of nuclear power, citing its cleanliness and safety, despite public perception.
Nuclear power is considered portable power and capable of supplying baseline power, unlike intermittent renewables without significant battery storage.

3. Challenges to Nuclear Power Expansion:

NIMBYism (Not In My Backyard), stemming from a lack of understanding of nuclear power.
Cost, largely driven by permitting delays.
The French government's decision in the 1970s to build 75% of its power from nuclear within 20 years is cited as an example of successful government commitment.
In contrast, the UK's Hinkley C project is projected to cost over $30 billion for one reactor, with significant timeline escalations.
Small but well-funded anti-nuclear groups can negatively impact a country's critical power supply.
Government commitment and sensible permitting regimes are crucial for fast-tracking nuclear development.

4. Uranium Production Gap and Supply:

A substantial production gap is forecast in uranium, growing from approximately 51 million pounds through 2026 to 1.75 billion pounds through 2045.
The challenge in developing uranium mines is a lack of public support, requiring government intervention.
Australia, despite being a material uranium producer, does not allow nuclear reactors, highlighting the disconnect between production and utilization.
The need for reliable energy infrastructure and energy security is paramount with expanding populations and energy requirements.

5. Uranium Price Response and Market Dynamics:

Despite the production gap, uranium prices are not responding more aggressively due to a history of "boy who cried wolf" scenarios and the sector's inability to consistently deliver on promises.
The US government's commitment provides comfort and signals a desire to secure future supply.
Utilities, who own nuclear reactors, are conservative and typically secure fuel for at least four years.
Price jumps often occur when end-users (utilities) begin to reinvigorate their fuel supply chains.
The raw cost of uranium is a minuscule component of the total cost of producing fuel rods, meaning the uranium price could quadruple without significantly impacting fuel prices.
Uranium is non-substitutable, meaning reactors will pay what is necessary.
Long-term contracts with utilities mean that spot price movements don't always immediately impact all producers.
A previous price surge to $127/lb was driven by a mining company buying uranium to cover short positions, not by utilities.

Copper Market Analysis and Outlook

1. Copper Price Drivers:

Spot prices have hit record levels, moving to $5 USD per pound.
Adel has been predicting a "pinch year" around 2025 for copper, where a shortfall in primary supply is projected.
This shortfall is exacerbated by technical issues at Grasberg and delays in the Quellaveco (QB2) project, impacting material copper suppliers.
Declining primary production profiles, expanding demand, and tariffs are contributing factors.

2. Incentive Price for Copper Development:

The current $5/lb incentive price is insufficient for companies to invest in building new copper deposits.
Adel previously estimated the incentive price to be between $6 to $8 USD per pound, and now believes it's higher.
No large companies have made material investments in building big copper projects until the world is "screaming for them to do so" at a much higher price.

3. Investment Opportunities in Copper:

Adel suggests that large copper companies should be acquiring developers, as they are still very cheap.
However, large companies tend to acquire at the top of the market, not during current opportunities.
The copper supply-demand fundamentals are exceptionally positive.

4. Glencore's Copper Production:

Glencore's copper production is down 40% from 2018 levels, potentially missing out on the current price bonanza.
CEO Gary Nagle has indicated Glencore has significant capacity that can be brought online when the market demands it.
Adel believes Nagle is "begging" for very high copper prices.

5. CEO Incentives and Project Development:

Large diversified companies are run by humans with Key Performance Indicators (KPIs).
CEOs are unlikely to be rewarded for taking on the risk of massive capex builds with potential delays and cost blowouts.
Many large companies are not managing these builds well, as seen with delays at QB2.
CEOs may opt not to make risky build decisions if they won't be compensated more.
The strategic thinking involves understanding when to take on risk and when to acquire assets at opportune times.

6. Cobre Panama Mine and its Impact:

The closure of the Cobre Panama mine in late 2023 is a significant event.
First Quantum Minerals estimated that if the mine had remained operational, it could have contributed $1 billion USD to Panama's treasury and $2 billion to local suppliers.
CEO Tristan Pascal is increasing pressure on President Jose Molino for a potential restart.
Adel believes that a country like Panama, where Cobre Panama is a material contributor to GDP, will likely see the mine come back online in the longer term.

7. Factors Influencing Cobre Panama's Restart:

Companies need to understand the importance of local and government support.
Managing risk effectively is crucial.
Building trust with local communities and countering inaccurate external narratives.
Building bridges with governments and allowing them to make decisions without losing face.
Regulators and decision-makers are risk-averse; they may not approve projects if they perceive personal risk (e.g., losing their job or not being re-elected).
Companies need to understand individual incentives and make it easy for governments and communities to be supportive.
Adel believes everything is moving in the right direction for a restart.

8. Impact of Cobre Panama's Return on Copper Price:

Cobre Panama represented about 4% of global copper production when operating.
Adel does not believe its return to production will cause the copper price to fall back.
The move in copper prices is forcing a rational look at the sector, revealing a material structural gap between primary supply and demand that will play out from 2025.

9. Alumbrera Copper-Gold Project and M&A:

Alumbrera announced a PEA for its project in San Juan, Argentina, with a base case for a 60,000 ton/day concentrator.
The project will produce an average of 101,000 tons per year of copper equivalent for over 40 years, with an initial capital investment of $1.6 billion USD.
Alumbrera is located next to McEwen Copper's more advanced Los Azules project.
Adel states it makes "zero sense to build two mines" and that a merger between Alumbrera and McEwen Copper would create true synergies.
She believes now is the time for M&A in the copper space, as bullish signals are emerging but the market is not yet frothy.
Investors want to see sensible M&A.

10. Junior Developer Strategy and Future M&A:

Junior developers should consider forming a "cartel of future supply" to attract higher valuations from large companies.
This would involve creating a "super junior" development company with size, heft, and liquidity to attract generalists.
This strategy would put them in a stronger bargaining position for future M&A, which is deemed inevitable.

11. Impact of Argentinian Elections:

President Javier Milei's strong performance in midterm elections provides him with two more years to advance his agenda, which includes the development of the mining sector. This is seen as a positive boost for Alumbrera and McEwen Copper.