Welcome to VanEck
VanEck is a global investment manager with offices around the world. To help you find content that is suitable for your investment needs, please select your country and investor type.
Commodity and natural resource equity markets were skittish during the third quarter. Concerns surrounding tariffs, trade and Brexit dragged on, overshadowing markets and infusing them with further uncertainty. Central banks around the world continued monetary easing measures as a way to address persistent concerns around slowing global growth.
Oil price reaction following a drone attack on Saudi Arabia’s largest oil-processing centers appeared relatively benign, even as the U.S. oil rig count continued to decline (down nearly 21% since the end of 2018).
Though falling rates were supportive of gold during the quarter, prices eventually consolidated in September, giving back some of their mid-year gains.
Base and industrial metals remained unsettled both as trade concerns continued unresolved and as copper demand sputtered. Nickel—one of the few bright spots in all of the metals and mining space over the past few months—gained on the heels of Indonesia’s effective ban on exports.
The performance of grains was also lackluster as, according to the U.S. Department of Agriculture, expectations of severe impacts to U.S. crops following unseasonably wet weather earlier in the planting season appeared to be more muted than first believed.
A couple of things surprised us over the quarter:
Still, we remain encouraged by what we have seen from companies across the natural resource space over the last quarter.
Despite higher prices, gold miners are focused on stringent cost discipline. Most companies we follow expect to hold the line on costs by maintaining their ore grade cutoffs and using a conservative $1,200 gold price to plan future operations. Some are paying down debt while others have already shifted to “shareholder returns” mode and implemented dividend programs. Encouragingly, so far, priority also appears to be placed on organic growth through brownfield expansion and/or increasing reserve life, rather than through new, costly greenfield projects or heavily financed M&A expansions. These two latter factors were the main sources of value destruction in the last bull cycle when companies overpaid for acquisitions and developed properties that required too much capital.
While the global diversified mining sector has emphasized financial discipline and return of shareholder capital for the last several years, there is now clear evidence of widespread adoption in the U.S. oil and gas industry as virtually every energy company we own has made significant capital returns to shareholders in the form of dividends and/or share repurchases in 2019.
Though share price performance of these names has been moderate at this point, we believe that at least some of this can be accounted for by the fact that many investors remain somewhat skeptical about the sustainability of a “return of capital” strategy. We have heard many times that investors want to see several years of consistent/improving behavior and financial results before meaningfully re-engaging in the sector.
To that, we might just add we are encouraged by the fact that:
For informational and advertising purposes only.
This commentary originates from VanEck Investments Ltd, a UCITS Management Company under Irish law regulated by the Central Bank of Ireland and VanEck Asset Management B.V., a UCITS Management Company under Dutch law regulated by the Netherlands Authority for the Financial Markets. It is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. VanEck Investments Ltd, VanEck Asset Management B.V. and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this commentary. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the commentary’s publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index.
All performance information is historical and is no guarantee of future results. Investing is subject to risk, including the possible loss of principal. You must read the Prospectus and KIID before investing in a fund.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
© VanEck Investments Ltd / VanEck Asset Management B.V.
© 2020 VanEck.