Precious, Base Metals Could Provide Shelter From Volatility

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As geopolitical factors continue to turn up the heat for investors in terms of market volatility, some of Mexico’s key mining operators and industry analysts advocate in favor of both precious and base metals as an effective protection against this volatility. 

Dean McPherson, Head of Business Development for Global Mining at both the Toronto Stock Exchange and TSX Venture Exchange, presented a dialogue that “seeks answers to two key questions: what are the factors that are impacting metal prices, and how can those factors create opportunities to build a robust business plan that can help avoid market volatility.” 

Jerry Huang, CFO of Impact Silver, advocated in favor of the advantages provided by silver ventures using his own project as an example, which he characterized as a “mid-tier cap” project that was nonetheless globally competitive in the precious metals context due to its yield given its status as a “pure silver” project. 

Huang said that there are simply not that many pure silver mines and assets out there in the global investment market, and that in the coming years this would make the value of silver increase in a reliable fashion as the difficulties inherent to both its exploration and processing became more obvious and its applications in multiple industries, many of them crucial to the energy transition, continued to rise. 

“I truly believe silver is underpriced given how much it costs to find it and its role in multiple industries,” said Huang. While other metals like lithium attract more media attention for being critical to the development of green energy technology, the use of silver in solar panel manufacturing alone was enough, in Huang’s view, to make it a competitive player in the race to capitalize on mining investment through the energy transition. 

John Darch, Chairman of Sonoro Gold, agreed with Huang’s enthusiasm for the potential of precious metals as a safe investment, saying that despite his obvious bias in favor of gold, “the big opportunity for Mexico lies in silver, copper and lithium, as we move toward a green energy transition.” Darch explained it was important to be clear on the multidimensional levels inherent to the factors that increased market uncertainty. “Uncertainty could be traced back to these larger questions related to international conflicts, to interruptions in supply chains that could be caused by those conflicts or by the pandemic, or by trends in political risk, such as a skewing toward nationalism and resource sovereignty.” Despite these warnings, Darch was clear regarding Mexico as a jurisdiction in which these investments could find a safe haven, despite political risks that could be identified in Mexico’s latest mining policies. “Project financing for Mexico might not be easy, but it might prove comparatively easier when compared to other jurisdictions.” 

The question of political risk was further emphasized by Carlos Díaz de la Garza, CEO of Moody's de Mexico, who noted that he has been aware of uncertainty coming from investors who are concerned about the role of lithium in the electricity law still pending review by Mexico’s legislative chambers. However, this was only one of many factors that included conditions imposed by the USMCA and the relative status of competing jurisdictions in the region which experienced elections and other impactful political processes in 2021 and 2022, such as Peru and Chile. He also agreed on the importance of precious metals, noting that “within the current context of inflation and high interest rates, precious metals like gold become safe havens for investors.” Díaz de la Garza pointed out that commodity prices are expected to exceed historical levels for most metals throughout 2022, with supply chain constraints translating into very rapid recoveries of any dip in demand. “In conjunction with low inventory levels, we expect prices to continue to be affected in a positive way.”

Arguing in favor of the equal importance of base metals we find Andrew Snowden, CFO of Torex Gold, and Etienne Morin, CFO of Orla Mining. Snowden said that Mexico continues to be an attractive jurisdiction and a safe destination for investments due to its connection to both precious and base metal projects, noting that “Mexico is already a Top 10 producer of gold, silver and copper, so it can leverage those to benefit from the energy transition.” 

Snowden said he “gets most excited about copper” not only because his company is developing an underground mine that could produce significant amounts of this metal, but because the role of copper in the energy transition is enormous. “Copper represents 10 percent of the weight of every EV battery that gets manufactured, and that is without counting the extensive wiring that goes into each unit.” 

Snowden explained that while research into battery chemistry and energy density pitted lithium, nickel and other metals against each other in terms of importance, copper remains in extensive use for both products and charging infrastructure regardless of who comes out on top.

Morin said that gold, historically speaking, has always been a reliable shelter for investors during volatile markets. “Before we look at what metal is considered a safe haven for investors, we need to see what asset class can perform well during times of uncertainty. Precious metals have historically performed well during challenging times, especially gold.” 

However, Morin noted that investors need to look beyond metals and asset classes and categories, and look into the characteristics of each project to unlock the potential each asset could have to stabilize their portfolio.