Another Upgrade While investors in precious metals companies need to acknowledge the impact of inflation will linger for longer than initially, iA Capital Markets’ George Topping and Puneet Singh think “Dr. Copper [is] boosted and ready for another run.”
Despite near-term “turbulence” brought by the Omicron variant, the equity analysts expect the base metal to remain “strong for years to come.”
“Omicron is peaking in certain areas of the world, however, there’s still a possibility for weaker data in Q1/22 due to supply chain issues, reduced manufacturing activity to curb case counts, etc.,” the analysts said in a research report released Friday. “We’d expect copper to slightly pull back during Q1/22 as this data comes out and some investors worry about how global growth is being impacted. However, the copper market still looks very tight. For example, the labour issues at BC’s Highland Valley mine (just 0.75 per cent of global supply) were enough to propel the copper price last week by more than 10 US cents per pound. This, combined with sustained low inventories on the exchanges, have led us to raise our price deck in the near term.
“Longer term, we continue to point out that the higher tax/royalty rhetoric in LAM could deter investment into new supply, further pushing out its timeline. Larger copper supply gaps could form 2024+ and we believe copper, like other metals benefitting from green investments themes, will remain higher to incentivize new supply. Thus, we have also raised our long-term price deck to compensate.”
With those price deck changes, Mr. Singh made some target price changes to producers in his coverage universe.
* Lundin Mining Corp. (LUN-T, “buy”) to $13 from $12.50. Average: $12.03.
“Lundin trades at a discounted valuation (trades at just 0.7 times NAV) but it has some work to do this year to restore investor confidence. Candelaria outperformed in Q4/21, producing 100Mlbs Cu. While we don’t think Candelaria will continue to produce 100Mlbs Cu per quarter (~85Mlbs Cu per quarter seems more sustainable), if LUN can string together a couple of steady quarters, it would be reassuring to investors,” he said.
Mr. Topping bumped up his target for Copper Mountain Mining Corp. ( “strong buy”) to $6.30 from $5. The average is $5.05.
“One of our recommended copper producers is CMMC as it has pulled back and now offers an attractive entry point on a highly torqued to copper equity. Amongst the larger BM producers (HBM, FM, LUN), our top pick is HBM,” they said.