March 17, 2025

Three Thousand

Gold hits three thousand briefly for first time

Gold rose 3.1% to US$2,995/oz this week and briefly touched US$3,000/oz for the first time ever, as the markets apparently continue to view geopolitical and economic risks as elevated enough to warrant this break through move for the metal.

Big Mining struggles on iron ore decline

Big Mining, comprising the three largest market cap companies in the sector, BHP, Rio Tinto and Southern Copper, saw a moderate slide in revenue and operating earnings yoy for H1/24 as a slowdown in iron ore offset gains for copper.

Gold stocks reach new highs

Gold stocks hit new highs, with the GDX rising 4.8% and GDXJ increasing 5.8%, far outperforming the -1.2% drop in the S&P 500, -0.5% fall in the Nasdaq and -0.7% loss in the Russell 2000, with all three having entered correction territory this year.

Gold stocks reach new highs

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Three Thousand

The gold price had a major breakthrough, briefly touching US$3,000/oz, and ending the week up 3.1% at US$2,995/oz, driving gold stocks to new highs, with the GDX up 4.8% and GDXJ rising 5.8%. The gold stocks have surmounted a critical hurdle in continuing to make gains even as equities overall have declined. The sector far outperformed the major equity indices, with the S&P 500 down -1.2%, the Nasdaq off -0.5% and Russell 2000 down -0.7%, and all three have now entered corrections, defined as a decline of more than -10% from their highs. In terms of short-term drivers for gold, there was limited major economic data, and the upward driver of a fall in the US$ was balanced by the downward driver of rising bond yields.

Gold could well make its first sustained push through this benchmark in the next few weeks as its ratios very other key assets including precious metals, oil, the broader commodities index and the global money supply are still only moderately above recent averages. There also appears to be more than enough broad economic and geopolitical risk to support a continued move into the metal as safe-haven. The epicenter of this risk currently is clearly the US, given the extreme political shift this year with the new administration. The biggest specific economic shock has been the major hike in tariffs over the past two weeks, and the retaliatory measures taken by many countries. It seems likely that the trade war could get worse before it gets better, it certainly looks set to continue through 2025.

While there are some signs that geopolitical tensions could ease this is certainly not guaranteed. We estimated last year that the premium in the gold price for the Russia and Ukraine and Middle East conflicts combined was at least US$400/oz based on the metal’s moves when these issues began. Even with the news pointing to a shift towards resolution for the Russia and Ukraine conflict at least, there has been no sign of strong market confidence in this with a pullback in the gold price. Also, even if the market is pricing in a reduced premium for a potential reduction in geopolitical risk, it may have been offset by a rise in the economic risk priced in on the trade war.

Gold stocks may continue to have support from relatively low valuations, but it remains a question if they will need a constant further boost in the gold price to make gains, or they can finally get some momentum and see an increase from a rise in multiples. This would imply that the market is pricing in that high gold prices are sustained over a reasonably long period. With a continued pullback in tech having the potential to drag down the overall market, there is also a risk that investors shift to broad selling across the market in the event of a major decline. This could even see safe haven assets sold off, especially those that have seen substantial gains, to cover losses in other assets. However, there could also be a scenario where the market moves heavily into more defensive sectors in a downturn, which could see gold stocks rise further, even with a broader decline in equities markets.

Big Mining slightly misses expectations, operating earnings edge down

The three Big Mining stocks have all reported results, with Rio Tinto and BHP announcing H2/24, and Southern Copper Q4/24, and all missing earnings estimates (Figures 4, 5). BHP saw the biggest miss, by -17.9%, with Rio Tinto and Southern Copper only slightly below expectations, by -4.9% and -2.7%, respectively. Aggregate revenue for the sector continued to trend down in H2/24 by -1.8% from 2.5% in H1/24 and 5.8% in H2/23, driven a decline in some realized product prices for the sector year on year (Figure 6). There was a similar downtrend in operating profit growth for the sector, with a decline of -6.8% in H2/24, after growth of 3.8% in H1/24 and 8.4% in H2/23 (Figure 7). The operating margin for the sector declined to 45.3% from a recent peak of 49.6% in H1/24.

Big Mining slightly misses expectations, operating earnings edge down

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BHP sees decline in iron ore, coal, but gain for copper

The largest company in Big Mining, BHP, faced a slowdown for its largest operating unit, iron ore, and its third largest segment, coal, but its second largest division, copper, saw gains for both revenue and operating profit (using earnings before interest tax and depreciation (EBITDA)). Iron ore revenue declined -18% yoy to US$11.1bn yoy in H2/24 on the drop in the metal price, and operating profit fell -26% to US$12.3bn (Figures 8, 9). Operating margins have trended down to 62% from their recent 70% peak in H1/23 (Figure 10). There was also a major contraction in coal revenue on a decline in the fuel price, by -26% yoy to US$2.8bn in H2/24, and operating profit for the segment slumped -42% to US$0.5bn, with margins at just 20%, down from 67% in H1/22.

BHP sees decline in iron ore, coal, but gain for copper

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The underperformance of these sectors was somewhat offset by a gain for copper, with revenue up 19% to US$10.3bn driven by a pickup in the copper price (Figure 11). Copper operating profit rose 44% in H2/24 to US$5.0bn, as margins have improved to 49% from 39% in H2/22. With the iron ore price remaining relatively flat, the coal price continuing to slide and copper surging back near highs of US$5.0/lb, it could be the latter sector that remains BHP’s main growth driver again in H1/25.

Rio Tinto dragged down by iron ore, with aluminum and copper up

Rio Tinto’s total revenue in H2/24 was exactly flat yoy although its operating profit declined -10.2%, with a decline in the iron ore segment offsetting gains for aluminum and copper. Revenue from iron ore, the company’s largest segment, declined -15% yoy to US$14.3bn and operating profit fell -27%, while margins declined to 53% from 63% in H1/23.

Rio Tinto dragged down by iron ore, with aluminum and copper up

The second largest segment, aluminum, grew 19% to US$7.2bn in H2/24 as the metal price continued to pickup, with margins in the business trending up consistently to 29% in H2/24 from 13% in H2/22. The third largest segment, copper, had strongest performance, but is only 16% of total revenue, which rose 52% to US$4.9bn in H2/24 and operating profit jumped 88% to US$1.5bn, while margins declined to 32% from 41% in H1/24.

Southern Copper concentrated in strongly growing copper, but margins down

Southern Copper’s revenue is much more concentrated than the other Big Mining companies, with copper at 75% of revenue in Q4/24, with the second largest segment, molybdenum, at 11% (Figure 16). Copper revenue rose a substantial 17% in Q4/24, to US$2.1bn, on the gains in the metal price, while molybdenum grew 29%. Operating margins for the company have trended down to 55% in Q4/24 from 58% in Q2/24 (Figure 17).

Southern Copper concentrated in strongly growing copper, but margins down

Big Mining’s shares and valuations continue to trend down

Big Mining share prices have trended down over the past year, with BHP off -12.6%, as could be expected given its heavy weighting to the decline in iron ore and coal prices (Figure 18). BHP’s price to book valuations have trended down over the past several years to 2.6x in 2025 from 3.6x in 2021, and its price to earnings to 11.8x from 16.3x over the same period. Both multiples are reasonably low and appear to have priced in a large amount weakness in two of its main sectors (Figures 19, 20).

Even though Southern Copper is exposed to the relatively strong copper sector, its price has declined by -10.3%, which is a similar decline to BHP, even though the latter is exposed to some much weaker sectors. However, this is likely because Southern Copper’s valuations have shot up far above the other two Big Mining companies.

Its price to book is 7.4x even after a decline from a peak at 9.0x in 2023. The company’s price to earnings ratio is also far higher than the other Big Mining companies, at 19.6x, and this is also down from highs of 27.4x in 2023.

Rio Tinto’s share price performance has been the strongest of the three Big Miners, with only a -1.6% decline, even though it also has a large exposure to the weak iron ore sector. This is likely because its valuations are the lowest of the three companies, and may have priced in the risk of a continued weakness in iron ore and even other sectors. The company’s price to book ratio was just 1.7x in 2025 and has edged down from an already relatively low 2.1x P/B in 2021. The price earnings ratio is just 9.9x and this has increased from a particularly low 5.9x P/E in 2021.

Big Mining’s shares and valuations continue to trend down

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Gold producers and TSXV gold nearly all gain

The gold producers and large TSXV gold nearly all gained on the metal price’s continued rise (Figures 21, 22). For the TSXV gold companies operating domestically, Artemis Gold reported Q4/24 results, with its first gold pour coming after the reporting period on January 29, 2025 (Figure 23). For the TSXV gold companies operating internationally, Minera Alamos reissued the PEA for the Copperstone Mine (Figure 24).

Gold producers and TSXV gold nearly all gain

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