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Precious Metals – Gold, Silver and PGM

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This article is a guest post by a metals & mining investment banker at a global bank.

There are a bunch of metals and mining investment banking jobs open at the moment, so this post is timely for anyone who is interested in the sector. The great thing about mining jobs is that the industry is highly specialised, and as such, anyone who works in the mining space will be a prime candidate for any mining job.

Unfortunately, because mining is so specialised and non-transferable (other than to oil and gas exploration and production to some extent), other industry and product groups are more likely to dismiss mining experience, pigeonholing a candidate. In addition, mining is extremely cyclical and bonuses and jobs may be cut at non-major banks.

So if you don’t like mining, get out while you can!

As we allude to in other literature, including our comprehensive mining primer, primary metals coverage is segmented into precious (Gold, Silver, PGM and other things that can be gifted to significant others) and base metals (copper, zinc, iron). Here is a brief summary of the precious metals space.

Canada is heavily focused on precious metal miners (gold in particular), with many major global senior gold producers (Barrick, Goldcorp, Eldorado, Kinross) being headquartered in Toronto or Vancouver and many junior gold and silver companies choose to list in Canada due to established legal frameworks.

Production of Precious Metals

Mining is a major industry for many countries, but certain countries have concentrated deposits due to the luck of the draw from geology. However, many of these deposits are in politically unstable jurisdictions, so regardless of where miners operate, they choose to list in Canada (on the TSX or TSX Venture Exchange for junior miners) or Australia due to well established legal frameworks.

Canada itself has ample reserves and resources, although small compared to the total reserve represented on the TSX. The actual production that is conducted in Canada is mostly out of BC, Ontario, Quebec and New Brunswick.

In terms of classifying the different mining companies, the universe can be divided into the following:

Senior Producers

  • Ex: Goldcorp, Barrick, Agnico Eagle
  • They typically have several producing assets, with a diversified asset base in many jurisdictions and optionality on prospective projects

Intermediate Producers

  • Ex: OceanaGold, Silver Standard, Tahoe
  • Several producing assets but projects are less scalable and lower quality (not long-life, low cost, large resource)

Junior Producers

  • Ex: Richmont, Roxgold, Teranga Gold
  • A couple of producing assets with several exploration/development projects in the pipeline – projects are small in size and undiversified


  • Ex: Gold Standard Ventures, Harte Gold, Rye Patch
  • Focus on exploration and development of mineral assets that are often pre-feasibility stage

Juniors and explorer/developers will often list on the TSX-V in order to obtain investor capital to fund their exploration goals due to the absence of internal cash flow from revenue and inability to source debt capital from public markets.

The gold or silver items that we see on a daily basis are not produced by these companies. Gold producers source raw material, instead of providing a finished product. The end product for gold producing mines are gold dore bars. These bars are then shipped off to be refined and manufactured into the gold coins and items for the end user.

In valuing these companies, investing professionals will look at valuation metrics including P/NAV (which goes up the closer the company is to producing ore), Enterprise Value to Reserves (Proven, Proven & Probable, Proven, Probable & Possible), and EV to Resources. EV/EBITDA is not relevant for junior to intermediate miners.

For mergers & acquisitions, bankers will look at contribution analysis, total acquisition cost (TAC – deal enterprise value inclusive of any transaction fees such as legal, accounting and advisory) and cash flow accretion.

Supply of Precious Metals

Gold and silver supply predominantly comes from mine production and metal scrap.

Gold and silver scrap is the recycled material from businesses or personal use that are re-melted/refined in order to be available for other industrial uses.

Central bank/sovereign sales are another source of supply – previously, central banks held gold reserves to back up their currency (read about the gold standard… somewhere else). This is not the case anymore and governments have gone in varying directions in terms of net gold purchases (the UK famously sold off a large amount of gold reserves before gold had a sizable run up).

Central bank sales, especially from China and Russia, are likely to remain modest, at best due to China’s positioning of the RMB as an alternative to the dollar and the US’s growing instability. Overall, mining supply is expected to decline.

Industrial Use of Precious Metals

The two main uses for gold are physical demand (for investment purposes) and jewelry. However, gold has industrial use and is useful due to its malleability, luster and other unique properties.

Gold is often found in electronics (bond wiring, plating salts) and dentistry (filling, crowns).

Silver’s main use/demand also comes from physical demand (Tiffany & Co). The difference with silver is that it has a larger proportion of overall demand coming from industrial use.

Due to its strength, malleability and electrical conductivity, silver is often used in electronics (batteries, satellites), brazing alloys, photography, photovoltaics (renewable energy) and ethylene oxide (pharmaceuticals, cosmetics).

Price Commentary

Gold and silver prices have been range bound since the crash in 2013 (spured by Federal Reserve tightening monetary policy and declining demand).

There has been a recovery in physical demand, in particular coming from India.

Gold and silver are both well-positioned in terms of the precious metals cycle

  • Stocks have been drawing
  • Mining supplies falling
  • Limited new development
  • Silver industrial demand increasing coupled with declining supply

In the near term, the Fed and whether or not they deliver on rate hikes will affect price levels. If central banks do not deliver on hikes, gold should see a rally in prices. In the long term, inflation will play more of a factor, where the potential for larger infrastructure activity in the US and/or increased protectionism should drive gold upwards.

Related Reading for Gold

GoldOverview of Senior Gold Producers in Canada · Precious Metals – Gold, Silver and PGM · No pot of gold at the end of the rainbow ·

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