Citigroup Highlights 'Pockets of Opportunity' in Quality Copper and Gold Mine Developers

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"M&A among gold developers has been less fervid than in copper," according to analysts John Hill, Graham Wark and Liam Fitzpatrick. "This is likely related to political factors (tougher locations) as well as commodity outperformance that provided copper mines excess cashflows, plus better ROI (return on investment) on projects."

Although they note that mining and metals have suffered "amid dour re-calibration of global macro forecasts, and a dollar-driven exodus," Citigroup metals analysts suggest that, "by year-end portents of doom will likely shift to pro-cyclical assessments, ‘If this is as bad as it gets, that's pretty good."

Nevertheless, analysts John Hill, Graham Wark and Liam Fitzpatrick warned that mining and metals "will likely remain rangebound, awaiting either macro or supply/demand catalysts."...

In their research Citigroup noted delays on major committed copper projects are averaging 6-12 months...

In their analysis, Citigroup found that mine supply is less relevant to gold prices.Meanwhile, the analysts noted that "there are many smaller miners (<400,000 oz/year) planned near term and relatively few larger scale projects."

"M&A among gold developers has been less fervid than in Copper," they said. "This is likely related to political factors (tougher locations) as well as commodity outperformance that provided copper mines excess cashflows, plus better ROI (return on investment) on projects."

"Gold mines tend to show high cash margins but poor ROI due to short mine lives," Citigroup advised. "As such, the wave of M&A for gold developers has been less impressive with more current availability of single asset gold developers...

Meanwhile, Citigroup noted that "financing risks are a bigger concern for gold developers as the senior gold companies are less flush with cash than copper competitors. This will likely result in more juniors attempting to go to construction with others banding together."

The analysts also found that the higher capital cost trend is less clear in gold "where there is a greater variance in mine life (more short lived operations)."

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