Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank mining analyst Orest Wowkodaw detailed government regulations to limit foreign ownership of critical minerals,
“In conjunction with the recent regulatory approval of Glencore plc acquiring a 77% controlling stake in Teck’s giant Canadian steelmaking coal business for US$6.9B, the Government of Canada issued an updated policy statement indicating that future M&A transactions involving larger critical mineral miners and foreign buyers will only be approved in the most exceptional circumstances … we note that HCC, Au, and Ag are not included .. While we support the Government’s initiatives to protect Canada’s critical minerals industry from foreign interests (especially SOE’s [State-Owned Enterprise]), the updated policy significantly compresses M&A optionality for Canadian miners. However, the door remains open for future domestic consolidation among miners (Cu + Cu, or potentially Au + Cu for example)”
There are more than 30 minerals listed by the government which Scotiabank presented in a chart I reproduced on social media here
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Citi analyst Aakash Doshi expects continued strong demand for gold bullion,
“Physical gold demand likely softened in 2Q versus 1Q, albeit off a very strong base. Underlying gold consumption growth is still trending positive for 2024 and could help push 2H’24 spot trading towards a record $2,400-2,600/oz average price range, as financial investors play catch-up. Chinese retail gold imports and global central bank gold demand eased in recent months following a record 1Q seasonal. However, bullion ETF inflows have started to manifest, and buying interest there could become more pronounced into quarter-end and year-end. We remain constructive on gold physical uptake over the next 12m with a potential Fed cutting cycle and US labor market headwinds buttressing paper demand for the yellow metal. Our base case price targets $2,800-3,000/oz gold trading for mid-2025 (+10-20% versus the forwards)”
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BofA Securities U.S. equity and quantitative strategist Savita Subramanian previewed second quarter earnings with some surprising statistics,
“We expect a 2% beat (+11% YoY), in line with the historical avg. and the smallest since 4Q22 … The Economic Surprise Index (ESI) is now at the lowest level since June 2015, implying a 3% miss in 2Q. But post-GFC, EPS beat 91% of the time (3% on avg.) when the ESI was negative (vs. 94% hit rate & 6% beat when positive). An EPS miss is rare. Since Reg-FD, EPS have been cut 78% of the time into earnings, by 4% on avg., but 2Q EPS estimates have remained unchanged since March, which suggests analysts are comfortable with their estimates. Both our earnings revision ratio & guidance ratio improved in 2Q, and BofA indicators suggest growth is holding up … Excluding the [Magnificent 7], consensus expects just +1% in real sales growth in 2H … While the 14% EPS growth expected in 4Q looks high, over 60% of growth (or 9ppt) comes from the Mag. 7, non-recurring expenses in Health Care from last year, and Financials … Monetization of AI is likely to take longer than initially hoped for, but hyperscalers are aggressively investing in AI. Consensus expects a 34% increase in hyperscalers’ capex in 2024, or ~$200B. The key question is whether they will continue to invest aggressively even if monetization is pushed out”
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Diversion: “Uncharted: Crime and Mayhem in the Music Industry, episode 19: The mysterious death of the Rolling Stones’ Brian Jones” – A Journal of Musical Things