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Performance
The
Company’s NAV fell by 8.9% in December 2024, underperforming its
reference index, the MSCI ACWI Metals and Mining 30% Buffer 10/40
Index (net return) which declined by 8.1% (performance figures in
GBP).
December 2024 was
a difficult month for the mining sector, which underperformed
broader equity markets represented by the MSCI All Country World
Index, which declined by 2.4%. The mining sector was impacted by
concerns around US tariffs and their potential implications for
global economic growth, particularly in relation to China. This
situation has created uncertainty about the extent of stimulus
measures that China may implement, resulting in mined commodity
prices coming under pressure.
During the month,
the base metals were hit the hardest, with nickel, copper and zinc
prices falling by 3.6%, 2.7% and 5.0% respectively. Elsewhere, the
iron ore (62% fe) price fell by 2.9%.
In
the precious metals space, gold and silver prices both fell by
1.3%, as the US dollar strengthened significantly creating a
headwind, with the DXY Index increasing from 105.7 to
108.5.
Turning to the
companies, we saw profit-taking in the US-based steel names as
interest rate expectations moved higher.
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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