Copper Stocks Set To Gainhttps://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=38569&sn=Detail
Copper stocks set to gain significantly over the next year
Great opportunity for copper equities to rise significantly over the next year exists as rising near term copper prices increasingly influence equity valuations.
Author: Tessa Kruger
Posted: Thursday , 18 Oct 2007
JOHANNESBURG -
Canadian broker/analysts Raymond James notes in a recent Equity Research report that copper equities covered by the investment dealer will soon trade above its long-term price estimate of $1.90/lb. This comes as "above-average", near-term copper prices fuel growth in producer earnings and contribute to shorter paybacks for projects owned by development companies.
The rising cash balances and quicker project paybacks will be the main drivers of share price outperformance in the coming months, said analysts Tom Meyer and Miroslav Vukomanovic.
The analysts estimate that copper equity valuations are implying a flat-forward long term copper price of $1.80/lb, at a real discount rate of 8%. "This compares with our previous calculation of $1.59/lb in early September this year. "This was based on a spot copper price of $3.34/lb and a 27-month forward price of $2.83/lb."
More recently, on 16 October, the spot copper price was up 10% from this level at $3.67/lb and the 27-month forward price was up 12% at $3.18/lb. "The implied copper price increased by 13% over this period and copper equities covered by the dealer increased 17% in value by weighted average."
Copper equities covered by Raymond James include Amerigo Resources, Antofagasta, Anvil Mining, First Quantum, Frontera Copper, Inmet Mining, Northern Orion, Quadra Mining, Taseko Mines, African Copper, Cadente, Chariot Resources, Corriente, Equinox Minerals, Inca Pacific, Ivanhoe Mines, New Gold Inc., Northern Dynasty, Northern Peru, Baffinland Iron, New Millenium and International Royalty.
The copper producers are trading at a 2008 estimated EV/EBITDA multiple of 4.5 times and a P/NAV multiple of 0.96 times. Although the mentioned copper equities were trading at a 2008 EV/EBITDA (EV - Enterprise Value) multiple of 4.4 times and a P/NAV multiple of 0.92 times - implying the equities are slightly more expensive now.
But the analysts believe a higher multiple is justified given continued positive fundamentals in the commodity market.
In addition, Raymond James subscribes to the idea that the industry is now on the "other side of a step change" in capital and operating cost inflation.
The expansion of multiples is expected in future to be driven by higher copper prices, greater confidence in a protracted commodity cycle and inflation hedge against currency weakness.
Copper stocks rated as "strong buy" by the analysts include Amerigo Resources, Anvil Mining, First Quantum, Frontera Copper, Quadra Mining, Candente, Chariot Resources, Equinox Minerals, Inca Pacific, Northern Dynasty, Northern Peru, Baffinland Iron, New Millennium and Int'l Royalty.
These stocks are expected to appreciate and both produce a total return of at least 15% and outperform the S&P/TSX Composite Index over the next six months.
The shares of Frontera Copper, Quadra and Taseko stand out as "inexpensive" among producers covered by the dealer.