UK Miners Strike Gold Amid Tariff Turmoil

UK miners appear to be experiencing a notable upside from the tariff wars due to higher prices of base commodities, including levies on aluminium, but is this move sustainable in the current economy?

Gold Amidst the Copper

UK stocks measured in the FTSE 100 index have experienced a decline this month, erasing nearly all gains from the final week of February. While investors have been extra cautious due to the uncertainty surrounding tariffs being imposed, suspended, and paused by the White House, certain sectors have managed to perform well. The housing sector is on the rise as interest rates decrease, prompting Halifax to state that the building market has returned to pre-pandemic conditions. Another sector that is also seeing potential gains from the application of tariffs is mining.

The Trump administration has already imposed levies on aluminium and steel imports, which have contributed to an increase in aluminium prices since it was announced. It was also reported that the US Commerce Department launched an investigation into copper, which is seen as the first step toward applying tariffs to this metal as well. The US aims to protect domestic copper production and currently imports the metal primarily from Chile, Canada, and Mexico. However, China is also a major exporter, processing ores produced in Chile and other places for sale on the global market. Slowing domestic demand has led Chinese firms to seek to offload their relatively high levels of inventory onto the global market.

Can This Keep Going?

With expected higher costs for raw materials due to tariffs, it is not surprising that UK mining companies such as Fresnillo, Antofagasta, and Endeavour are among the top-performing stocks in London this week. Often, copper deposits contain gold, which adds to the value of these mineral resources. However, with gold hitting several consecutive new all-time high prices this quarter, UK miners that receive a substantial amount of revenue from the yellow metal have been among the top performers. The latest to report has been Endeavour, which posted record cash flow, allowing it to boost its dividend by 40% compared to the prior year.

The US is not the only country to apply tariffs that disrupt the metals world. Vietnam and South Korea have applied levies on Chinese steel, accusing the Asian giant of dumping and contributing to volatility in the price of iron ore and steel. Meanwhile, the dollar has come under pressure as investors are skittish about the prospects of economic growth and prefer to invest in treasuries instead of the riskier stock market. The weaker dollar also contributes to higher metal prices, which could be a positive sign for miners. Miners typically attract investor attention during market risk-off moves as they are often seen as defensive, dividend stocks.

Fresnillo to Triple Digits?

An inverse head and shoulders pattern on Fresnillo continues to point to a full-blown reversal to 1000 GBX. On the way up, resistance levels sit at 885 and 935. A pullback of the current upside leg may be imminent as prices near the short-term pennant breakout projection at 885. Losing the 780 and 730 supports may open the door to 650 and 610.

Source: SpreadEx / Fresnillo

Key Takeaways

The imposition of tariffs on metals by various countries has contributed to higher prices, which have benefited UK miners. The housing sector has also seen a boost due to declining interest rates, adding to the fuel. With the dollar weakening and investors preferring defensive stocks during market volatility, the entire mining industry has been boosted. All these factors have created favourable conditions for UK miners who are exposed to gold and copper.