[We share the sixth edition of our free monthly newsletter on the macro environment and natural resources investing that we send to our subscribers. Subscribe here]
Dear subscriber,
Welcome to a new edition of this newsletter, which we must begin by acknowledging the obvious: that the risks we flagged of a major energy crisis have not materialised.
Quite the opposite: oil prices have collapsed from their highs, and equity indices have been strong. But while we were overly conservative and perhaps misread the situation, the fact remains that the conflict in the Middle East is far from resolved.
Before we get into the detail, a reminder of our latest report — in this case the first mining jurisdiction analysis we have published, dedicated to Chile. In a new political cycle with a pro-investment agenda and a record mining pipeline waiting to be unlocked, our independent analysis offers investors a reading of the Chilean moment: where the real opportunities lie, which risks to watch, and how Chile compares with Argentina and Peru in the contest for mining capital.
(The report is available both to community members and through individual purchase.)
We are also about to launch, for our members, our report on Hot Chili, a copper developer whose flagship asset, Costa Fuego, is one of the largest independent copper-gold developments in the world, on the coast of Chile’s Atacama region.
Without further ado, let us try to summarise what matters most across the macro backdrop and the metals. In this summer edition we have aimed to be more concise than usual, so that nobody’s ice cream — or beer — goes to waste.
Macro environment
The energy crisis that never was — or will be? Plus a “new” focus of attention: Kevin Warsh and monetary policy, rising rates and a stronger dollar
Since our last edition, the board has been reset: the signing of the memorandum of understanding (MoU) and the reopening — albeit partial — of the Strait of Hormuz eased the geopolitical risk premium and sent oil prices tumbling, just as Kevin Warsh’s debut at the helm of the Federal Reserve prompted a hawkish reading from the market. The combination of the two has driven the dollar higher, to more than one-year highs, along with real interest rates — becoming the main headwind for gold and for commodities as a whole. That said, the truce has proved to be more of a pause than a resolution of the conflict, as we have witnessed in recent days.
The crude market went as far as pricing in an almost complete normalisation, having ruled out the worst-case scenario — a total and prolonged closure of the strait. A crucial contribution came from China, which sharply reduced its oil imports by drawing down its vast inventories, acting as a buffer to the shock on the demand side (more detail here).
Source: Freight & Barrels.
One nuance we consider important: cheaper crude has not fed through to what economic agents actually consume. Crack spreads — the refining margins for converting crude into refined products, and diesel in particular, a key input for transport, agriculture and industry — have surged, pointing to tightness in this part of the market even as crude fell. The consequence falls on inflation, whose relief may prove more limited and transitory than the fall in crude would suggest.
Crack spreads in red vs WTI crude in black. Source: ZeroHedge
And above all, the crisis is far from over. In recent days we have seen a sharp escalation: Trump has declared the ceasefire “over”, further rounds of mutual strikes have followed, and Iran has once again declared the Strait of Hormuz closed. Brent has rebounded in response to above $85 (as of 14 July). The market, which had already reduced its immediate dependence on the Middle East and had shifted its attention elsewhere, appears to be starting to accept that we are facing a fragile exit from the crisis, with the MoU up in the air and clear latent upside risk in crude.
Source: Michael McDonough
Monetary policy: the perception of a tougher Fed
On the most relevant macro data, US inflation hit a three-year high in May (4.2% year on year), before easing to 3.5% in June. On employment, the underlying components point to relative weakness, suggesting an economy still growing solidly but with downside risks, and with inflation above target.
Against that backdrop, the market has read Kevin Warsh’s debut in hawkish, restrictive terms. Although his true orientation has yet to be confirmed, and the macro data will mark the path, the dominant perception is of a Federal Reserve prepared to take a tougher line on inflation. Should the employment picture deteriorate, it would pose a serious challenge for the monetary authority in the event that inflation persists at relatively high levels.
As the chart above shows, both the dollar (ochre) and interest rates (blue line, the 10-year bond in this case) have consequently moved higher in recent weeks, with some respite following the release of the June CPI figure. A strong dollar makes dollar-denominated commodities more expensive, and higher interest rates generally reduce the appeal of non-yielding assets such as gold.
Metals and commodities
Gold under pressure from monetary policy expectations, while central bank demand may act as a source of support
Gold and silver
Gold and silver have extended their downtrend and are now posting losses for the year, of more than 20% in silver’s case (who still remembers the ferocious — and highly speculative — rally at the start of the year?).
Performance in % of gold (orange) and silver (grey) in 2026
On this occasion, the dollar and real rates have weighed more heavily than the conflict in the Middle East. Gold, for now, appears to have found support at around $4,000.
In the short term, much of the path ahead will depend on which way the Federal Reserve’s dilemma tilts. On one side, the scenario that is negative for gold, in which it is forced to raise rates on fears of persistently high inflation — fuelled by the energy factor. On the other, the one in which a macro deterioration, particularly in employment, combined with an easing of inflation, ultimately pushes it to cut rates further down the line, a turn that has historically been favourable for the metal. Two opposing paths whose outcome the data will determine.
Set against that short-term debate, the most robust structural argument in gold’s favour remains central bank demand, which has bought the fall with conviction, led by China. The World Gold Council’s annual survey confirms as much: the share of central banks planning to increase their gold reserves over the next twelve months has risen from barely 5% in 2019 to around 40% today.
Source: Bloomberg based on WGC data.
The North American financial investor, by contrast, has moved in the opposite direction: over the first half of the year it withdrew capital from gold ETFs, with outflows tied to the outbreak of the conflict with Iran (particularly heavy in March) and to the higher opportunity cost imposed by dollar strength and real rates (June). Global ETF flows nevertheless remained positive over the half, supported by Asian demand, and global holdings stayed close to record highs.
Source: World Gold Council.
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Copper
Copper has held up better than other metals: the COMEX contract is trading at around $6.40 per pound, up close to 13% on the year, albeit along a highly volatile path (from lows of $5.40 in March to highs near $6.65 in May and June). The most interesting part, however, lies beneath the surface.
Copper price performance in 2026
It is worth first clearing up a regulatory unknown that came to nothing: the Department of Commerce report that industry participants were expecting on 30 June, which could have opened the door to a tariff on refined copper (currently exempt, unlike the 50% already levied on semi-finished products), passed without an announcement. The lack of clarity keeps a degree of uncertainty alive, though its effect on the price is more indirect than that of the factors that have genuinely weighed of late.
The most structural factor is the sulphuric acid crisis, which we have discussed in previous editions. The closure of Hormuz — through which a large share of the world’s sulphur flows — compounded by China’s ban on acid exports, sent prices soaring.
What matters is the recent turn: with the relative normalisation of Hormuz, sulphur has fallen close to 18% over the past month, but remains well above pre-war levels. The relief is therefore both incipient and fragile, with the Chinese ban in force until August and the recent escalation in the conflict reintroducing risk.
Beyond the short-term noise, the underlying copper thesis remains intact and finds fresh support in the rise of artificial intelligence and data centres, which are emerging as a demand driver in their own right. According to Benchmark data, a hyperscale data centre consumes some 25 tonnes of copper per megawatt, and by 2030 data centres are forecast to account for more than 5% of global copper demand from electrical infrastructure — and above 25% in North America. A structural tailwind that, added to electrification and the shortage of major new projects capable of reaching the market within a reasonable timeframe, reinforces the strength of the copper thesis.
Lithium
In our report on Sigma Lithium, published some six months ago and available publicly, we already argued that lithium had recovery potential, but limited: today’s fundamentals are not the ones that drove the 2022 rally. Six months on, the market is moving towards that scenario. Lithium carbonate has corrected by close to a quarter from its May peak. The catalyst has been CATL’s Jianxiawo mine — one of the largest lepidolite operations in the world — which, after almost a year offline, secured its definitive permit on 29 June and resumed production. That such a signal should move the price in this way appears to reinforce our view of a rangebound market, with upward potential but limited scope, tending towards the marginal producer’s cost, largely because of the elasticity of supply, which is capable of reactivating large projects that cover demand through to 2030.
That said, the price tends to run ahead of fundamentals in both directions. The correction reflects fears around sodium batteries and possible oversupply, amplified by an accounting change that has inflated visible inventories in China; but, as Macquarie points out, underlying stocks continue to draw down and those risks appear overstated for now. On the other side, demand offers a structural tailwind that is far from trivial: battery energy storage (BESS), which grew by more than 50% in 2024 — surpassing 213 GWh, according to Rho Motion — and has established itself as a demand driver now comparable to electric vehicles.
Want to go beyond the lithium price? Our team has X-rayed Savannah Resources and its Barroso project in an independent, technical analysis.
Uranium
The uranium market presents an interesting divergence: the spot price is trading at around $85 per pound, within a narrow range for months now, while the long-term price (term) — the market that really matters, and from which utilities source the vast majority of their supply — has continued to climb, from some $80 a year ago to above $95. As various analysts stress, the reference that counts is not a dormant spot price but that term price, which reflects a structural deficit building beneath the surface. On the demand side, the signals point firmly higher: Urenco will expand its US enrichment capacity by close to 50%, while the US Department of Energy has launched a conditional loan programme aimed at rebuilding the country’s nuclear supply chain and accelerating the deployment of ten large reactors.
Source: Cameco
On the supply side, Cameco suspended Cigar Lake on 1 July following a breakdown at the acid plant of the mill where its ore is processed, but announced this week that production has resumed with no impact on its annual guidance. Also anecdotal, though instructive, is the case of Lotus Resources, which has had to halt its Kayelekera mine (Malawi), in the middle of its restart and ramp-up, owing to a combination of problems: delays in third-party acid supply — linked to the Middle East conflict, the same thread we flagged in copper — and damage to the furnace of its own acid plant, still being commissioned. This has forced it to renegotiate with utilities the deferral of deliveries committed for this year, serving as a reminder of how demanding this sector is operationally: ramping up a uranium mine rarely goes to plan.
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Mining sector
As was to be expected given everything set out above, the correction has fed through to the mining companies, as the table below shows: every mining subsector is down between 10% and 15% over the past month, with silver and lithium bearing the brunt. Year to date, however, the picture splits in a way that is consistent with what we have been describing: the miners tied to lithium and copper are holding on in positive territory, while those exposed to the monetary metals are bearing the weight of the dollar, real rates and the selling triggered by the conflict with Iran. It is worth keeping perspective, in any case: over one year almost every subsector has racked up very substantial gains.
In our view, this kind of correction within structurally bullish trends tends to improve the risk profile of entry into sectors and companies that until recently were trading overbought and with excessively optimistic sentiment, now cleaned out.
Source: Investing.com, as of 15 July.
This section is the place to explain why we devote so much space to oil and refined products in the macro section: because their relevance to the mining sector is direct. Energy is one of the largest components of a mine’s cost structure — from the diesel powering the truck fleet to power generation at remote sites — and in the previous edition we were already warning of the impact of the energy shock on the miners and of its likely translation into upward revisions to cost guidance.
Today’s reading is more nuanced than the headline suggests: although crude has corrected sharply from its highs, what companies actually consume are refined products, and there the divergence is notable — while the barrel deflated, crack spreads surged and remain at very elevated levels — so that the cost relief reaching the income statement is considerably smaller than the crude price would imply. How that gap evolves is, as things stand, an open question: it will depend on the effective normalisation of refined product flows and on the course of the conflict itself, and it is not clear whether refining margins will ease to reconnect with crude or whether this divergence is here to stay for a while. In our view, this is one of the points that most warrants close attention in the coming reporting season.
Additional resources
Featured charts
One point we find interesting for better understanding copper supply is the one made by Albert Mackenzie, an analyst at Benchmark: the industry tends to repeat that building a mine takes ten, twenty or even thirty years, and from there the leap is made to the conclusion that a supply deficit is inevitable. But, as he notes, that claim refers above all to large Western-operated mines in traditional jurisdictions, where shareholders, quarterly reporting and demanding social and environmental legislation slow investment down. The figure he provides is telling: between 2015 and 2025, global mined copper supply grew by around 4 million tonnes, and the volume attributable to Chinese-owned companies rose by 2.7 million — roughly 70% of the net growth over the period — driven above all by investment in projects in Africa, with the DRC as the central piece. His conclusion is not that the supply challenge does not exist, but that we tend to hold an excessively Western-centric view of how that gap might be filled.
Source: Albert Mackenzie, Benchmark Copper Service.
The other side of the coin is Chile. The world’s largest producer — accounting for roughly a quarter of global mined output — recorded a 13% year-on-year fall in production in May, and over the first five months of the year is running materially below 2025, moving in the lower part of its historical range. The causes are structural and will not be resolved overnight: ageing assets, declining ore grades, water constraints and weather-related disruption linked to a strong El Niño event. This is precisely the kind of dynamic we analyse in depth in our country report on Chile as a mining jurisdiction: what lies behind its loss of competitiveness, what may change with the new political cycle, and which signals are worth watching to gauge the credibility of its project pipeline.
Source: National Statistics Institute (INE), HSBC via Evy H.
Recommendation
Our partner and mining engineer Ignacio Vélez Pérez features on the Charlando de minas podcast, where he shares an international career forged across Africa, Latin America, Canada, Europe and Russia, at benchmark companies such as Teck, Redback Mining (Lundin Group), Kinross and Kaz Minerals. He explains why he decided to join Truth Below Ground and offers keys to analysing mining companies at their different stages: the importance of good planning before building a mine, why so many projects end up overrunning their initial budget, and which signals reveal, from a technical standpoint, risks that the market often overlooks. Along the way he analyses real cases such as Rio2 and NGEx, showing how an expert eye can completely change the reading of a project. A conversation well worth your time if you want to understand what a mining engineer brings to analysis of the sector.
And if you would like to benefit from the knowledge and analysis of Ignacio and of other professionals on the team — specialists in areas such as geology, metallurgy, sustainability and governance — you can subscribe to Truth Below Ground, where we pour that multidisciplinary perspective into independent reports on mining sector companies.
With this we conclude the sixth edition of the Truth Below Ground monthly newsletter. As always, we would greatly appreciate your feedback through whichever channel suits you best (links below, or simply reply to this email), not only on this newsletter but also on the reports we have published and on the project as a whole. We look forward to hearing from you!
Until next time.
Truth Below Ground
Mining research community.
