Commodity Prices Surge, But Can the Industry Unleash Supply?

Positive pricing and growing demand fueled upbeat sentiment as RBC Capital Markets hosted its 18^th Global Mining & Minerals Conference, but panelists and delegates were candid about the challenges facing the sector.

Long-term prices offer tailwind

Rising commodity prices supported an optimistic view at the conference – despite current industry estimates, which are largely based on lower, historical prices. Corporate panelists shared positive views on long-term prices, while agreeing that business budgets and decisions should take a conservative view of estimates.

International decarbonization efforts provide an opportunity for green-linked metals. Capstone singled out high-quality iron ore and copper as two key metals likely to benefit. Copper demand, in particular, is also being driven by megatrends such as population growth, better living standards, and the advance of AI.

“Copper demand is being driven by megatrends such as population growth, better living standards, and the advance of AI.”

Josh Wolfson, Head of Global Metals & Mining Research, RBC Capital Markets

Projects and people are big hurdles

Demand may be rising, but ramping up supply to meet it is not straightforward. Project construction delays and cost overruns are common. There are multiple contributing factors, from external forces such as inflation and geopolitical risk, to company-specific issues, including overambitious guidance and the use of third parties for execution.

Panelists from Orion Resource Partners and G Mining emphasized the critical nature of internal project execution teams, and establishing and assessing projects with specific execution plans.

Recruitment remains a key challenge to achieving supply growth. The number of mining engineers and graduates pursuing mining as a profession has been declining. Panelists discussed the need to engage the younger generation in the field and to provide mentorship.

“Project construction delays and cost overruns are common: there are multiple contributing factors, from external forces such as inflation and geopolitical risk, to company-specific issues.”

Sam Crittenden, Analyst, RBC Capital Markets

Base metals have biggest appeal

Conversations at the conference underlined a clear investor preference for base metals. This is partly offset by recent rising equity valuations.

Precious metal equity valuations are attracting interest, but the field is still overshadowed by stagnant margins thus far and capital allocation risks.

In terms of specific commodities, gold investors are increasingly calling for return of capital, in particular buybacks, while producers are prioritizing financial liquidity. Gold M&A has picked up in recent months, but potential near-term asset sales from Newmont could herald further transactions.

Sentiment for copper is still positive, though investors seem to be taking a wait-and-see approach, given the recent correction in prices. Despite stubbornly high Shanghai copper inventories, overall global stocks remain low, with insufficient concentrate coming from the mines.

Sentiment on iron ore remains cautious, due to concerns around sluggish demand in China. Investors are increasingly seeing metallurgical coal as a bright spot, amid an expected restocking in India and low supply growth.

Uranium retains strong fundamentals and investor interest. Supply is constrained, while there is increasing focus on nuclear energy as part of the clean energy mix, and to support AI and data center demand for power.

“Precious metal producer valuations are attractive, but investors likely need more evidence of sustainable margin expansion before we see increased sector inflows.”

Michael Siperco, Analyst, RBC Capital Markets

Challenges for the next President

Former Speaker of the House, Kevin McCarthy, joined the conference for a keynote discussion with Helima Croft, Managing Director and Head of Global Commodity Strategy and MENA Research.

Focusing on the election race, McCarthy said a Trump administration would prioritize four issues: the southern border crisis, deregulation initiatives, the imposition of tariffs, and economic growth incentives. He noted that, since it is a law, the Inflation Reduction Act (IRA) cannot be changed unilaterally by the President.

In McCarthy’s view, the biggest early hurdles either candidate would face as President would be the forthcoming expiry of the federal debt ceiling and the expiry of several provisions of the Tax Cuts and Jobs Act of 2017.

Overall, he saw the country’s most pressing issue as the state of global peace, and the rise of China, Russia, Iran, and North Korea. A compounding issue is the weakening influence of the U.S. from a currency and commodity standpoint.

McCarthy also remarked that the U.S. had not provided a favorable environment for domestic development of critical materials, jeopardizing the country’s supply. This was particularly evident, he said, given China’s dominance in processing critical materials.