National Bank While equity analysts at National Bank warn elevated inventories and potential supply growth are near-term headwinds for copper prices, they continue to see favourable long-term fundamentals, presenting opportunities for investors moving forward.
“At the start of the year, we anticipated copper price support from supply side disruptions related to the closure of Cobre-Panama, decreased guidance from Los Broncos and Quellaveco as well as potential delays in ramp-up of other significant projects throughout the year,” they said. “Despite improved conditions for copper prices as a result of these supply challenges, softer demand amidst persistently elevated interest rates has led to copper inventories building to four-year highs ahead of rising supply forthcoming throughout H2/24.
“Despite more negative fundamental headwinds than anticipated at the start of the year, renewed interest in the sector has led to an increase in speculative investment driven by the prospect of future copper demand growth stemming from Chinese stimulus, broader energy transition requirements and growing demand from AI data centers. While we buy-in to the longer-term view of persistent supply challenges, we anticipate softer than anticipated demand through H2/24 coinciding with rising supply from QB2, Mantoverde, Tucum, Kamoa-Kakula and Tenke Fungurume as well as ramp-up of production from other operations. At current prices, we see more direct scrap incentivized into the market as well further bolstering supply, a more contrarian/cautious near-term view. Our near-term Base Case copper price of US$4.25/lb (was US$4.10/lb) remains below current copper prices of US$4.45/lb.”
In a research report released Monday, the analysts added ‘Dr. Copper’ has decoupled from historical correlations, suggesting price appreciation/volatility could persist.”
“Historically, copper prices have been used as a barometer for health of the broader economy,” they said. “In recent months, prices continue to trend higher despite rising physical inventories, a challenging manufacturing backdrop, slower consumer spending/construction activity and a decline in Chinese GDP growth. Copper prices now appear to be following broader equity markets higher rather than leading the way as it’s done historically. Not to say the broader economy won’t continue to gain traction as interest rates worldwide start to decline, but it does appear that while copper forges new correlations associated with the longerterm energy transition, we could see further price appreciation and potential volatility.”
With that view of a broader energy transition leading to higher copper demand and pointing to “inflationary pressures on the global cost curve for new projects,” the firm raised its long-term price projection to US$3.85 per pound from US$3.65.
“One of the key themes we outlined at the start of the year was the impact of delivering transformational growth projects for several companies within our coverage universe throughout 2024,” they said. “The flow of funds into the sector has delivered what we view as sustainable multiple expansion given long-term supply deficits in copper and its critical importance to the broader energy transition. Irrespective of copper price performance, delivering transformational growth or positive news flow to support greater value creation is expected to support further multiple expansion.
“Taking each company’s growth outlook into account as well as future catalysts, we continue to view TECK/B and CS as the names best positioned to deliver transformational growth and drive share price rerating in coming months with MTAL and ERO also standing apart from peers with respect to near-term operational improvements.”
They made a series of target price adjustments across their base metals coverage universe. For their top picks, their changes are:
* Teck Resources Ltd. ( “outperform”) to $82.50 from $77.50. The average is $74.80.
Analyst Shane Nagle: “Divestiture of the steelmaking coal business in Q3 will provide significant cash to bolster the balance sheet ahead of delivering the next leg of copper growth as well as returning cash to shareholders, both supportive of a higher multiple.”
* Capstone Copper Corp. (“outperform”) to $12 from $11.50. Average: $12.24.
Mr. Nagle: “Management is solely focused on delivering the Mantoverde and Mantos Blancos expansion projects in H2/24, and in doing so, CS will be the name investors will pivot to under an improved backdrop for copper prices given several transformational growth projects in the pipeline.”
* Hudbay Minerals Inc. ( “outperform”) to $16.50 from $15.50. Average: $15.88.
Mr. Nagle: “FCF inflection in 2024 is set to improve further as the gold prepay rolls off in August. Leverage to elevated copper/gold prices and a discounted valuation position the company favourably ahead of a possible partnership agreement/further advancement of Copper World.”
* Filo Corp. (“outperform”) to $38 from $36. Average: $33.91.
Mr. Nizami: “: Year-round drilling continues to expand into mineralization along the entirety of strike while infilling Aurora-Bonita, giving resolution to a large-scale open-pit scenario and maiden sulfide resource.”
Other changes include:
- Arizona Metals Corp. ( “outperform”) to $4.50 from $5.50. Average: $6.90.
- Aura Minerals Inc. (ORA-T, “outperform”) to $16 from $15. Average: $16.
- Centerra Gold Inc. (CG-T, “outperform”) to $12 from $11.25. Average: $11.43.
- Eldorado Gold Corp. ( “outperform”) to $26 from $25. Average: $23.86.
- Ero Copper Corp. ( “sector perform”) to $32.50 from $33.50. Average: $34.86.
- Lundin Mining Corp. (LUN-T, “outperform”) to $19.50 from $18. Average: $17.85.
- Newmont Corp. (NGT-T, “sector perform”) to $68 from $67. Average: $63.50.
- Pan American Silver Corp. (PAAS-T, “outperform”) to $35.75 from $35.25. Average: $23.05.
- Taseko Mines Ltd. (TKO-T, “sector perform”) to $4.25 from $4. Average: $4.14.
- Torex Gold Resources Inc. (TXG-T, “sector perform”) to $27.50 from $27. Average: $27.61.
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