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Gold, silver to trade higher in 2019

With 2019 fast approaching, market watchers are now expecting commodities to have mixed performance.

Analysts at Haywood Securities forecast commodities will pick up in 2019, turning the current weakness in the mining sector into a buying opportunity. The investment firm said in a Dec. 12 note that the market is witnessing a pullback in a longer-term era of equity out-performance.

"In the near-term, a flattening yield curve and widening credit spreads will likely to continue to drive further equity market volatility, which will provide buying opportunities for bottom-up stock pickers with a long-term horizon."

Haywood also believes gold and silver prices could trend higher in 2019 as it expects a weakening U.S. dollar to boost prices for the precious metals. Also, the analysts expect to see an improving operating margin in 2019 for miners as prices increase while cost pressures will likely remain modest.

Analysts at Haywood see the current valuation of B2Gold Corp. as an attractive entry point for investors looking for exposure to a top-tier producer within the intermediate producer realm. It reiterated a "buy" recommendation with a C$5 target price for the miner, compared to its Dec. 12 trading price of C$3.57. Growth catalysts could be illustrated by the company's low-cost production profile, Haywood said, adding its Fekola mine is projected to deliver lower cost production into 2031 with a forecast capacity expansion to 7.5 million tonnes per annum to be completed in 2021.

The weakening U.S. dollar and Chinese stimulative measures could be supportive for the overall base metals sector, which faced a bear market beginning in 2011 until bottoming out in early 2016. However, Haywood said the ongoing trade tension between the U.S. and China may offset these benefits.

The electric vehicles market continues to drive investment decisions. Haywood remains positive over copper due to the commodity's lower mine supply and increasing use in electric batteries. Although the recent tightness in the zinc market is a positive signal for pricing, growing supply from mines in 2019 is expected to weigh on prices. Analysts also flagged a likely increase in nickel prices with the growing use of electric batteries driving the need for capacity growth in the sector.

Even after a significant drop in lithium prices in 2018, Sanford C. Bernstein analysts expect the commodity to drop further, estimating a long-term lithium price of some US$8,000/t as current spot prices represent "an anomalous position"

"We have long believed that the considerable market hype surrounding the lithium market, as it pertains to the need to supply the 'electric revolution' with battery-grade lithium products, has been excessive," the analysts wrote in a Dec. 10 note.

Lundin Mining Corp. was another top pick of Haywood in 2019 on its positive outlook for copper. The stock, which has declined by about 40% following operational issues at its Candelaria mine in late 2017, is expected to perform well in 2019. Lundin's current net cash position will also provide financial security and M&A opportunities. Analysts gave Lundin a C$8 target price, compared with C$5.71 the stock recently traded at.

The uranium sector, which entered a bear market after the 2011 Fukushima disaster, is seen near a turning point with major producers starting to cut production as the reactor pipeline reaches its highest since before the Fukushima incident. Haywood believes uranium spot prices will continue to trend positively and expect momentum to continue in 2019 as material production cuts put the market into primary supply deficit. It also believes NexGen Energy Ltd.'s Arrow deposit at the Rook I project in Saskatchewan is the best uranium asset in the world, which is ripe for acquisition.

"We believe that a major uranium miner must control this asset and should be willing to pay a substantial premium to acquire it," the analysts wrote, attributing the recommendation to project economics, which suggest cash costs of production that are a quarter of major mines in the Canadian province.

A recent pre-feasibility study on Arrow estimated annual production of 25.4 million pounds of U3O8 over a nine-year mine life.

Haywood gave NexGen a C$6 target price, indicating a 120% potential upside from its recent trading price of C$2.73.