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Ranking the Large Cap. Miners

Updated: Jun 12, 2022

From the commodity space we believe that the unprecedented levels of fiscal and monetary policies across the globe will lead to sustained higher than expected inflation levels (5.7% in FY/2021, the highest annual increase since 1984) and interest rates (potentially 4+ rate hikes this year), both of which are supportive of hard assets. From the producers universe, we continue to favor high margin, lost cost operations with potential for resource expansions in mining friendly jurisdictions void of geopolitical risk. Companies with growth profiles and a history of successful execution will most likely convert newly constructed mines (or expanded) mines into meaningful cashflow growth. That said, to temper our optimism we are cautious with companies which have overly ambitious growth forecasts or are in the midst of massive operation ramps as inevitable production delays and/or unforeseen events will likely impact the production timetable. Looking at a combination of near term catalysts, solid fundamentals and current valuation, we favor and maintain our positive conviction with Agnico Eagle (AEM), Osisko Gold Royalties (OR), Cleveland Cliffs (CLF) and Teck Resources (TECK), which all rank well in the bottom left quadrants below.

From the precious metal names, we continue to favor Agnico Eagle which has a quality asset base in stable jurisdictions such as North America, Australia and Finland. With a pending merger with Kirkland Lake expected to close later in February, we believe the combined entity will be producing over 3.6M gold ounces (FY/2023e at an AISC of below $900/ounce) annually and will provide the investing public an alternative to Barrick Gold and Newmont Mining.

We also are positive with Osisko Gold Royalties, a mid-tier royalty company which unlike larger royalty peers, does not trade at a premium P/NAV multiple using the current gold spot price. Osisko has a portfolio consisting of over 160 royalties, streams and offtakes generating 80,000 GEOs during last year alone. Cornerstone royalties include from Malartic, Canada’s largest gold mine and near term growth opportunities from the Eagle Mine (Yukon) and Mantos Blancos (Chile). The company is primed for opportunistic deals given nearly $80M cash on hand and the availability of a $650M revolving credit facility (including $100M accordion).

From the large cap base metals side, we continue to favor Teck Resources, a diversified miner with market leading positions in zinc and metallurgical coal, emanating from an asset base from Canada, the US, Chile and Peru. The Quebrada Blanca Phase 2 copper project (60% Teck) will be the longer term value driver as the commodity mix will tip to the copper side once production begins in 2H/2022. As the project ramps up, any potential capex escalation will be likely more than compensated from the strong FCF from the coal business (at current elevated FOB pricing above $310/t).

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