Zinc and nickel Scotiabank's top picks for investors

Ms Patricia Mohr, Scotiabank economist said that base metals were a bright spot in 2014 largely ignored by equity markets and are among our picks for investors in 2015. LME nickel and zinc ranked No. 3 and 5 within the ‘Top Five’ best performing commodities of 2014 with price gains of 19.8% and 11.6% respectively in the year through December 15th 2014.

Ms Mohr said that “However, a focus by investors on copper, widely expected to edge down in 2015 alongside ongoing mine expansion, seems to have taken the shine away from these metals in the equity markets.”

Meanwhile spot uranium prices bottomed in June, she noted, given Japanese approval of two nuclear reactor restarts, posting a 7.2% YoY gain. After a recent election win, Japan’s Prime Minister is expected to push for additional reactor restarts to boost a sagging Japanese economy.

She said that “The base term, contract price for uranium has increased from USD 45 to USD 49, a positive sign for a gradual recovery in coming years. Cameco’s Cigar Lake mine in Saskatchewan continues to ramp up towards 18 million pounds by 2018. To build shareholder value in a lackluster economy, mining companies will focus on divesting non-core assets and spinning off undervalued operations.

Ms Mohr forecast that average prices of USD 1,267 per oz gold, USD 1.25 per lb zinc, USD 9 per lb nickel, USD 3 per lb copper and USD 42 per lb uranium in 2015.

She said that zinc prices strengthened in the second half of this year, averaging USD 1.03 per lb, with investors and commodity funds expecting zinc concentrates to move into a supply side deficit by 2016 alongside significant depletion. Century the world’s third-biggest zinc mine is expected to close in 2015:Q3 and Lisheen in Eire by late 2015 or early 2016.

She added that “Nickel prices should also outperform in 2015, benefitting the Sudbury Basin, Thompson Manitoba, northern Quebec (Raglan) and Labrador (Voisey’s Bay). Prices will climb from this year’s USD 7.67 average to at least USD 9.00 in 2015 (+17.3%) and USD 11.50 per pound in 2016.”