Analysts at Jefferies initiating six “significant” copper growth stories on Friday, “covering the gamut from explorer to producer, but with a consistent theme of growth both present and future.” “Copper development capex is insufficient to match the current secular demand growth outlook,” the firm said in a research report. “That is part of the reason for Jefferies street-high copper price forecast in 2027-2028 ($6/lb). The reason for the lack of spending in new copper capacity is simple: Investors do not expect the risk-adjusted return to exceed the cost of capital due to inflating costs, justified fears of capex overruns, and concerns over long-term asset security. However, this does not mean that projects and growth cannot happen. It just means that companies need to have more prerequisites in place in order to achieve it. Namely, we identify as critical factors: exceptional geology, high IRR projects (typically niche opportunities rather than greenfield megaprojects), and credible teams.”
For three of the companies, they touted “exceptional geology.” They are:
- Ivanhoe Mines Ltd. with a “buy” rating and $25 target. The average on the Street is $21.37.
- Filo Corp. with a “buy” rating and $34 target. Average: $32.58.
- NGEx Minerals Ltd. with a “buy” rating and $12 target. Average: $11.94.
“IVN has one of the world’s highest grade copper operations at Kamoa-Kakula in DRC, where it is poised to ramp-up a Phase 3 expansion and smelter, driving the next leg of growth and rising margins for this asset,” the analysts said. “We see significant upside to IVN’s high grade resource base in Western Foreland as well. As if that weren’t enough, IVN will soon start production from the world’s highest grade zinc mine, and is developing a PGM (and nickel) mine which we believe will ultimately reshape the PGM sector. NGEX and FIL are focused on the Vicuna district along the border of Chile and Argentina and have been delineating deposits with the valuable combination of both scale and grade. We expect Vicuna to become the world’s next major copper district.”
For the other companies, they emphasized “good IRR projects.” They are:
- Capstone Copper Corp. with a “buy” rating and $13 target. The average is $10.95.
- Ero Copper Corp. with a “hold” rating and $30 target. Average: $31.50.
- Hudbay Minerals Inc. with a “hold” rating and $13 target. Average: $12.74.
“CS has transformed in recent years from a mid-tier copper producer with the mature Pinto Valley mine anchoring the copper portfolio into a company with several large scale copper assets and a lower unit cost outlook,” they said. “CS is ramping volumes at Mantoverde and already working on an optimization project to drive further upside. ERO is also approaching ramp-up of its newest asset, Tucuma, which has only a 12-yr mine life but is high grade, and we estimate a 44-per-cent IRR with just over a one-year payback. Lastly, HBM continues to ramp production in Peru, courtesy of the Pampacancha pit. We see the turn-around of Copper Mountain keeping growth on track until Copper World, which will be one of the US’s only major new copper assets in development in the next few years.”
Expecting base metal names to “stay at a premium,” they added: “On average, base metals names have historically traded at a discount to spot P/NAV; however, since Covid the names have been averaging close to parity at spot. Prolonged shortages are not the normal state of the copper market, but until supply growth picks up or demand growth falls, we believe we will continue to see copper stocks trading at a “new normal” elevated valuation, with growth names trading at a further premium, and likely an M&A premium bolstering higher multiples. We initiate with a Buy rating on IVN, CS, NGEX and FIL. We initiate with Hold ratings on ERO and HBM, which are attractive, but we see valuations as more full.”