Republican Sweep Points to Bullish Outlook for U.S. Miners; Tax Loss Selling Opens Door for Investors

• Derek McPherson and Samuel Pelaez of Olive Resource Capital discuss the impact of the 2024 US election results, with a Republican sweep led by Trump, on markets, the economy, and resource sectors.
• Expectations include continued deficit spending, pro-growth policies, and streamlined permitting under a second Trump administration, which could benefit mining projects.
• Commodities like gold, silver and copper have shown resilience compared to equities as US dollar has strengthened post-election.
• Tax-loss selling season in November and December often creates attractive entry points in resource equities, especially for U.S.-based projects poised to benefit from expected policy changes.
• Several specific mining stocks are discussed as potential tax-loss buying opportunities, including Arizona Sonoran Copper, AngloGold Ashanti, Troilus Gold, and Silver47.

In this episode of The Compass, Derek McPherson, Executive Chairman, and Samuel Pelaez, President & CEO of Olive Resource Capital provide their insights on the implications of the 2024 US election for resource investors. With a Republican sweep led by the reelection of Donald Trump, they anticipate substantial impacts on economic policy, commodity markets, and mining stocks in particular.

Current Market Conditions

Since their last discussion in October, overall sentiment has turned more negative, despite relatively stable prices for key commodities like gold ($2,600/oz), silver ($30.50/oz) and copper down 5%. Resource equities have generally underperformed commodities over the past three months. The U.S. dollar has strengthened significantly post-election, rising nearly 5%.

Election Implications

McPherson and Pelaez expect the second Trump administration, with Republican control of both houses of Congress, to pursue policies that are generally pro-growth and supportive of the resource sector. Key initiatives will likely include:

• Lowering taxes and reducing regulations, building on similar efforts from Trump's first term
• Continued deficit spending on infrastructure, tax cuts and subsidies
• Streamlining the permitting process for mining projects, particularly those deemed critical for national interests
• Potential tariffs on imported goods to support domestic industries, though the hosts note this could be inflationary and logistically challenging

While deficit reduction appears to be a lower priority, the proposed "Department of Government Efficiency" led by Elon Musk and Vivek Ramaswamy may attempt to eliminate duplicative agencies and programs starting in 2025. However, McPherson and Pelaez caution that the ultimate economic impacts remain uncertain and will depend on the timing and scope of any cuts.

On balance, they believe the next four years could be positive for U.S. economic growth and resource development, but with substantially wider deficits in the near-term, and the natural uncertainty such defificts will bring.

Implications for Permitting

Changes to the mine permitting process could be one of the most significant developments for U.S.-based mining projects. Currently, permitting is complex and time-consuming, involving multiple agencies and layers of review at the federal, state and local levels. The hosts believe there is a good chance the second Trump administration will aggressively streamline this process, either by executive order or by pushing more authority down to the state level in traditional mining jurisdictions like Alaska, Arizona, and Nevada. McPherson explains:

"Trump builds things for a living - he built golf courses, he built buildings. He knows how complex it is, how difficult it is to actually do something like this, to build things...in his own self-interest, which we can all be somewhat certain Trump has some of that at heart, he'll actually look at that and go 'This has got to be easier to build things.'"

Tax Loss Selling Opportunities

With the end of the tax year approaching, the hosts spend considerable time discussing the dynamics around tax-loss selling in resource equities. Near the end of the calendar year, investors often sell positions trading well below their cost basis to realize capital losses and offset gains elsewhere in their portfolios.

Because Canadian tax rules prevent repurchasing the same security for 30 days to claim the loss, this often leads to indiscriminate and sharp declines in junior mining stocks in November and December, followed by a recovery in January as investors re-establish positions. Pelaez explains:

"You get these low-volume moves down. All of a sudden these late November, December trading levels create very attractive entry points, especially if you see, like the stock is down. There are companies that fell out in that rebalance, that's going to create some attractive entry points."

Specific Stocks Mentioned

The hosts highlight several mining stocks that they believe could be good candidates for tax loss buying, based on their recent trading activity, fundamentals, and leverage to the themes discussed:

1. Arizona Sonoran Copper (TSX:ASCU) - Copper developer in Arizona with a recently published positive PEA. Stock is trading around C$1.29, down 20-25% from its equity financing price of C$1.45 earlier this year.
2. AngloGold Ashanti (NYSE:AU) - Diversified gold miner with key growth project in Nevada. Recently re-domiciled to the U.S. Stock has pulled back to around $24 after peaking near $32.
3. Troilus Gold (TSX:TLG) - Gold developer in Quebec with over 8.1 Moz in resources. Recently announced a letter of intent with a German government agency to secure project financing. Completed a strategic financing which included warrants, making the stock more susceptible to tax loss selling. It is to expect that Troilus could be a target in a wave of gold M&A expected next year.
4. Silver47 (TSXV:AGA) - Silver explorer in Alaska with over 100 Moz in historical resources. Recently completed RTO and commenced trading, which could lead to selling pressure from investors in the former private company looking to exit. McPherson and Pelaez view any weakness as a potential opportunity.
5. Bravo Mining (TSXV:BRVO) - PGM and copper explorer in Brazil. Very illiquid stock that could be impacted by small sellers. Upcoming exploration results expected in Q1 2025.

Conclusion

The reelection of Donald Trump and Republican sweep of Congress is likely to usher in a period of pro-growth, pro-mining policies in the United States. By lowering taxes, reducing regulations and streamlining permitting, these initiatives could meaningfully derisk and enhance the value of US-based mining assets. While broader economic impacts remain uncertain, particularly around tariffs and the longer-term impact of wider deficits, the fundamental outlook for gold, silver and copper appears constructive.

The Investment Thesis for Precious Metals

• Gold, silver and copper have outperformed the mining equities over the past several months, demonstrating resilience in the face of a stronger US dollar and negative market sentiment. This suggests the fundamentals for these commodities remain positive.
• Tax loss selling in November and December often creates attractive entry points to build positions in high-quality developers and explorers. Investors can take advantage of near-term weakness to invest for the longer-term fundamental outlook.
• If the second Trump administration is successful in streamlining permitting and reducing regulatory burdens, US-based mining projects could see significant reratings as their development timelines and risk profiles improve. Investors should focus on late-stage projects in favorable jurisdictions like Arizona, Alaska and Nevada.
• Copper and silver are critical metals that will be essential for the energy transition and electrification. Current prices are likely to incentivize new mine development. M&A activity in these spaces could accelerate if the permitting environment improves.
• Miners are generally in much better financial shape compared to the last cycle, with stronger balance sheets and free cash flow generation. Many larger producers will likely turn to M&A to supplement their project pipelines, which could benefit developers and single-asset producers trading at attractive valuations.

Investors can use the current tax loss selling season to opportunistically build positions in high-quality resource equities at attractive entry points. Developers and explorers in favorable US jurisdictions like Nevada and Arizona could be particularly well positioned to benefit from the expected political tailwinds. M&A activity may also accelerate if larger miners look to take advantage of the improved operating environment to boost their project pipelines and growth profiles.