BNS Upgrade Scotia Capital analyst Orest Wowkodaw thinks the “risk-reward proposition for the mining equities remains extremely attractive.”
“Although macroeconomic risks remain elevated, we anticipate a strong stimulus-driven recovery in ex-China markets to more than compensate for decelerating Chinese growth, Omicron concerns, and higher interest rates. In the medium to long term, we anticipate the emergence of a new commodities super cycle driven by growing demand from global decarbonization efforts to address climate change amplified by the impact of severe underinvestment in new production capacity,” he said. “Heightened geo-political risks in LatAm are likely to compound the supply crisis as miners defer growth.”
In a research report released Monday, Mr. Wowkodaw made a series of adjustments to his commodity price forecasts, recommending exposure to copper, premium bulks, and uranium.
“Among the base metals, we continue to prefer Cu [copper] exposure given very low inventories and our forecast of a relatively tight near-term market (including another sizable deficit in 2022), before transitioning to a large mediumterm structural deficit due to supply erosion,” he said. “We also anticipate Cu to be among the biggest beneficiaries of growing global decarbonization efforts. While we remain concerned with over-supply risks in Ni [nickel], the outlook for Zn [zinc] has significantly improved. We see material downside pricing risks for HCC from extremely elevated levels and moderate downside risks for Fe; however, we continue to like the outlook for the premium segment of bulk commodities. Moreover, relatively healthy Chinese steel mill margins suggest that current pricing dynamics have runway. U3O8 [uranium] fundamentals are improving on supply constraints, aggressive inventory stockpiling, and the increasing role for nuclear in green energy.”
With changes to his price deck, the analyst now sees “attractive” valuations and free cash flow across the sector, prompting him to make a series of significant target price adjustments. His changes include”
- Altius Minerals Corp. , (“sector perform”) to $18 from $1. The average on the Street is $20.32.
- Cameco Corp. (“sector outperform”) to $40 from $38. Average: $34.95.
- Champion Iron Ltd. (“sector outperform”) to $7 from $6.50. Average: $7.32.
- Copper Mountain Mining Corp. ( “sector outperform”) to $4.50 from $4.25. Average: $4.95.
- First Quantum Minerals Ltd. ( “sector outperform”) to $43 from $37. Average: $35.
- Hudbay Minerals Inc. (HBM-T, “sector outperform”) to $12.50 to $11.50. Average: $12.82.
- Ivanhoe Mines Ltd. (“sector outperform”) to $15 from $12. Average: $12.66.
- Labrador Iron Ore Royalty Corp. (LIF-T, “sector outperform”) to $43 from $40. Average: $39.57.
- Lundin Mining Corp. (LUN-T, “sector perform”) to $12 from $11. Average: $11.78.
- Sherritt International Corp. ( “sector underperform”) to 45 cents from 40 cents. Average: 69 cents.
- Teck Resources Ltd. ( “sector outperform”) to $55 from $44. Average: $44.96.
- Taseko Mines Ltd. ( “sector perform”) to $3 from $2.75. Average: $3.26.
- Turquoise Hill Resources Ltd. ( “sector perform”) to $22 from $16. Average: $18.21.
“We recommend 10 of 24 equities under our coverage. Our top picks are FM-T, TECK.B-T, and VALE-N. We also highly recommend CCO-T, CIA-T, CMMC-T, FCX-N, HBM-T, IVN-T, and LIF-T. The average implied return for our preferred equities is now a more modest 27% (vs. 41% last quarter),” he said.