National Bank National Bank Financial analysts Shane Nagle and Rabi Nizami think valuations for base metals companies are “not yet supportive of [a] more aggressive approach,” believing the gap “presents opportunity for consolidation” in the sector.
“Historically, the most lucrative returns from base metal equities have occurred after copper prices have receded below the 90th percentile of the Global cost curve under recessionary environments (a level we currently estimate at US$2.75 per pound),” they said. “In each of 2009/2016/2020, the sector averaged a 12-month return over 300 per cent. As prices currently remain well above this level, we highlight that our implied copper price analysis and historical valuations suggest equities are fairly valued, at the present time. Under a prolonged recessionary environment, there’s further downside to equities and the market will wait for cost curve support, trough valuations or more attractive relative pricing before pivoting to more leveraged/growth-oriented names like CS and HBM.”
In a research note released Thursday, the analysts updated their near-term commodity price assumptions for the remainder of 2022 and 2023, including a reduction to the firm’s copper estimates for the fourth-quarter and next year to US$3.40 per pound (down from US$3.60).
“We have incorporated Q3 commodity prices and updated our assumptions in line with spot for the remainder of 2022 and 2023, reflecting a deteriorating price environment from our last update,” they said in a note released Thursday. “We continue to trend towards our long-term fundamental price assumptions by 2026 with incentive price analysis driving long-term prices higher for certain commodities. A global slowdown, rising interest rates, China’s zero-COVID policies, Russia’s ongoing invasion of Ukraine, rising inflationary pressures and pending supply growth are putting pressure on near-term copper prices. The potential for supply disruptions may offer some near-term support while supply-demand dynamics lead to more favourable long-term fundamentals.”
The duo made several price target changes to stocks in their coverage universe. They include:
- Solaris Resources Inc. ( “outperform”) to $14 from $16. Average: $19.19.