Monsters of Rock: Gold still the favourite as easing cycle begins

Rate cuts have begun in the US. Gold is the early winner. Pic: Getty Images

How experts think rate cuts will affect commodities
Perseus gains approval for Côte d’Ivoire’s first underground gold mine
Leo Lithium to return $330m to shareholders as it dumps its hunt for a new mine

A 25bps cut from the US Fed this week drew a muted reception, with the outcome effectively priced in and gold hovering beneath the US$3700/oz all time high it touched early in the week.

It has economists looking further out at what the easing cycle means and how it will play out.

The obvious takeaway is that rate cuts from the US Fed are good for commodities. And some experts are calling the start of a new mining boom in the not too distant future.

READ: The mining boom is coming, and the party’s about to get lit

ANZ’s Daniel Hynes and Soni Kumari have shaken the magical eight ball in a note this week to get a sense of what could occur now that one has begun.

“The most immediate impact is through the currency markets. The USD tends to weaken, boosting the appeal of commodities,” the bank’s commodity strategists said in a note.

“Additionally, lower rates improve investor appetite for risk assets. Lower borrowing costs improve the cost of storing and holding commodities.

“Easing cycles also signal a central bank’s intention to support economic growth, which improves demand expectations for industrial commodities.”

Each cycle is different, though. Hynes and Kumari noted America’s trade war is disrupting flows in metal markets and geopolitical risks as well as supply side constraints can moderate the impact of monetary easing.

And we’re seeing plenty of those between Russia, China and the Middle East.

For now, it seems gold, trading at US$3650/oz (+$5500/oz Aussie) will remain on top.

“This easing cycle also looks relatively benign. We expect a cumulative 125bp reduction in the US federal funds rate (FFR), well below the average reduction of 278 since 1990,” they said.

“The subsequent depreciation in the USD is also expected to be mild. However, the impact may differ by sector. We expect gold to outperform early in the easing cycle. Oil and base metals may lag until real economic activity picks up.”

Renewed rate cuts should support gold, while silver is also pulling back to a more familiar ratio to its more popular cousin.

“While the inverse relationship between gold and interest rates broke down during the rate-hiking phase, we believe renewed rate cuts will support gold. Silver has outperformed gold recently, with the gold:silver price ratio normalising to 85x. Investment demand will continue to drive silver prices as long as gold shines,” Hynes and Kumari said.

Iron ore has also been a surprise packet, lifting to US$106.15/t in recent weeks as Chinese steelmakers have benefited from supply side reform that has preserve profit margins.

Concerns over property demand and rising seaborne iron ore supply from Brazil and Africa have led to negativity in the broader market over the direction of the bulk’s prices.

But Hynes and Kumari noted non-property sectors now make up more than 72% of China’s steel demand and they see demand globally growing in 2025.

“Spot prices have tested the US$95/t support level four times over the past six months and recovered quickly. We expect that to remain the pattern in the short term, with our short-term price target set at US$105/t,” they said.

Win for Perseus

West Africa can be an unforgiving place to plough capital, but Côte d’Ivoire has become a haven for foreign investment in recent times.

With much of the Sahel now ruled by military regimes, places like Burkina Faso and Mali have become inconsistent places to develop and operate gold mines.

But largely pro-development Côte d’Ivoire has been scoring goals.

Its latest is the approval of a new underground mine at the Yaouré operation, owned by Perseus Mining (ASX:PRU), the country’s first.

The Presidential Decree from Alassane Ouattara means the CMA underground project can progress, with first ore due in January and commercial production expected from March 2027.

The US$170m project is one of many on the cards for 500,000ozpa producer Perseus, which is also developing the +200,000ozpa Nyanzaga mine in Tanzania.

“Receiving the Presidential Decree authorising the development of Côte d’Ivoire’s first underground mine is a major milestone for Perseus, allowing us to immediately proceed with the cutting of portals and ultimately gaining access to further important ore sources for processing through the Yaouré processing facility,” outgoing Perseus MD Jeff Quartermaine said.

“While receipt of the formal authorisation comes later than originally planned, the delay has allowed us time to complete all infrastructure works required to support the operation as well as ensure that Byrnecut’s underground equipment is available and commissioned ready for immediate commencement of mining operations.”

Perseus shares rose 2.5% on Friday morning to $4.30, valuing the gold miner at $5.8bn.

It expects to average 515,000-535,000oz annually over the next five years at costs of between US$1400-1500/oz, with Nyanzaga due for first gold in January 2027 to complement its Yaouré and Sissingue operations in Côte d’Ivoire and Edikan in Ghana.

And PRU remains cashed up, with US$827m in cash and bullion at last check and US$300m of liquidity in an undrawn corporate bank facility even after declaring a 5c dividend and renewing a $100m share buyback.

Lithium slugfest over

If there’s one thing investors hate it’s the smell of a deal when cash is on the table. Many a fund manager has been overheard in a West Perth bar complaining a miner’s management is about to go buy something.

So the arm has been twisted at Leo Lithium (ASX:LLL), around a year after trouble with the Mali Government prompted the junior to sell its half of the Goulamina lithium mine to Chinese partner Ganfeng.

It’s already returned some A$207.2m from the US$342.7m sale, but the rest of the cash had been burning a hole in LLL’s pocket since that was distributed earlier this year as its Simon Hay led board went chasing an acquisition to return to trade on the ASX.

But a proposed board spill from Firefinch, the delisted gold miner which birthed Leo Lithium and arguably abetted it troubles with Mali following the debacle that was its stewardship of the Morila gold mine, put paid to that.

A s249F notice had proposed to relinquish Hay, Brendan Borg, Amber Banfield and Alan Rule of their board duties and replace them with a team of well known WA mining names – corporate lawyer and Chalice Mining chair Derek La Ferla, former Hill 50, Metals X and Westgold boss Peter Cook, Greg Meyerowitz and Mark Hepburn.

Firefinch, now delisted and itself returning 2.25c to shareholders later this month, still owns 17.5% of Leo, more than enough to convene a shareholder meeting.

It demanded Leo return $280m from the second tranche due from Ganfeng along with the $53m of cash it held at June 30.

Leo quickly conceded, itself heading for a delisting having not traded on the ASX in nearly two years. It will pay $265m on October 14, including a 0.4c franked dividend and 21.6c unfranked dividend, before making a later unfranked return to liquidate the other $65m left over.

“As advised on 11 September 2025, the Company has thoroughly investigated several acquisition opportunities during 2025 but has not secured a transaction that it considers would be in the best interests of shareholders,” Leo said in a statement on Friday.

“Leo Lithium also advised on 11 September 2025 it was reviewing the ongoing strategy for the Company, focused on how best to maximise value for shareholders following its decision to return the Tranche 2 Funds to shareholders.

“Accordingly, the Company has now terminated the search for a new asset and has determined the best alternative for shareholders is to proceed to monetise its remaining assets and return all net proceeds to shareholders in the manner described below.”

All’s well that ends well.