TSX drops during May 15-19 trading week

Stocks ended the May 15-19 trading period with a modest drop as investors considered drawn-out negotiations about the U.S. government’s debt ceiling while Canadian and U.S. April retail sales landed weaker than expected.  

The S&P/TSX Composite Index fell 188.91 points or 0.9% to 20,351.06. The S&P/TSX Global Mining Index decreased 3.57 points or 3.2% to 108.91, and the S&P/TSX Global Base Metals Index declined 3.41 points or 1.8% to 186.35. The S&P/TSX Global Gold Index lost 17.64 points or 5.5% to 305.77, and spot gold ended the week at US$58.30 per oz. lower, or 2.9%, at US$1,961.60 per ounce. 

Centerra Gold fell 21% to close at $7.08 after performing poorer than expected in the first quarter. Canaccord Genuity mining analyst Dalton Baretto wrote in a note that Centerra’s Mt. Milligan operation in central British Columbia produced 28% less gold and 13% less copper than he’d forecast, while costs increased at the Langeloth metallurgical facility in Pennsylvania.  

The company’s cash on its balance sheet dropped by 56% from the end of 2021 “with very little to show for the decline,” Baretto said. However, management expects the cash consumption trend to reverse this year. Grades are improving at Mt. Milligan, rising costs may slow in the molybdenum unit’s mines in Utah and B.C, while the Öksüt mine in south-central Turkey, 295 km southeast of Ankara, may re-start.  

Still, Centerra is supporting four assets on care and maintenance (Öksüt, Kemess, Thompson Creek and Endako) with only Mt. Milligan producing, and it diverts part of that production to a stream arrangement. Centerra must make some significant strategic changes to its portfolio, Baretto said.  

Wheaton Precious Metals, which lost $3.31 to close at $64.94, joined fellow streaming company Franco-Nevada and gold companies such as Agnico-Eagle, Newmont, Seabridge Gold and Barrick Gold on the losing side of the weekly ledger, even though it landed a new stream in Ecuador. Wheaton paid US$300 million for as much as 6.6% of gold produced at Lumina Gold’s Cangrejos project.  

“In addition to (an estimated 6%) return, Cangrejos continues to add long-life precious metals exposure to Wheaton’s portfolio,” BMO mining analyst Jackie Przybylowski wrote in a May 17 note. “This is consistent with the type of growth preferred by investors.”  

The size of the deal is at the high end of expected transactions by Wheaton and Franco-Nevada, which can have an impact on its valuation. It also maintains Wheaton’s focus on long-producing precious metal assets, including opportunities for Wheaton to sweeten its deal with right of first refusal on future streams while limiting buyback options.  

Ero Copper gained $1.31 or 5.5% to close at $25.06 after reporting first-quarter results in line with expectations while the Brazil-focused producer remains on track to double copper output over the next few years.  

“We maintain our outperform rating,” Przybylowski said in a note. “Ero Copper continues to be our top pick North American senior base metals stock.”  

She said the second half of this year will improve results as Ero starts commissioning the Caraíba mill expansion and increasing grades while gold production at Xavantina rises after tapping the Matinha vein.  

Ero is also searching for nickel on its Curaçá Valley property, and completing the Tucumã mine where pre-stripping is ahead of schedule and engineering and electrical work are due to finish by the third quarter.