CIBC Notes EQUITY RESEARCH
July 10, 2024 Earnings Revision
Q2/24 Base Metals And Uranium Preview
Pricing Supports Earnings; Guidance Check-in
Our Conclusion
We expect our base metals and uranium coverage to report generally
stronger earnings results compared to Q1/24, and at the midpoint of the year
we expect that our coverage universe will achieve full-year guidance ranges.
Ero Copper is tracking toward the lower end of Caraba production ranges,
but a strong ramp-up of Tucum could offset this in H2/24. Copper prices
averaged $4.42/lb in Q2/24 (vs. $3.83/lb average in Q1/24), close to our
assumptions as we marked to market commodity prices in our June
commodity update.
Significant events in Q2/24 include the Panamanian election, where
President Jos Ral Mulino was elected. We view this positively and model a
Cobre Panama restart in mid-2025. Additionally, Capstone reported first
production from its cornerstone MVDP asset, and we upgraded Ero Copper
to Outperformer as it has substantially de-risked its Tucum project and has
a well above average 2025E FCF yield.
In the space, we recommend Cameco, Capstone, Ero Copper, Hudbay, and
Filo as Outperformer-rated stocks.
Key Points
Operational Outlook. We expect 6% weaker production Q/Q for FM (after a
high-grade Q1/24 at Sentinel). We also model slightly lower production Q/Q
for CCO, CS, and LUN. Our Q2/24 expectation for HBM is weaker than
Q1/24 but aligns with the company’s earlier outlook in the year. ERO is
expected to show some production progress after a weak Q1, with further
improvements in H2/24. Our Q2/24 cost expectations for this period compare
well to Q1/24 results, though by-product credits can cause volatility in cash
cost estimates in some cases.
Earnings Expectations. Generally we have lowered our Q2/24 EBITDA
estimates with this report, which are now mostly below consensus. We see
potential for consensus estimates to moderate over the next two weeks. On
average, our EBITDA estimates are 10% below Street expectations but up
18% Q/Q.
Full-year Guidance. Our coverage is largely well positioned to meet full-
year guidance ranges, although CS and ERO will need strong H2/24
production profiles to achieve guidance ranges. We expect HBM to have a
strong Q4 and model 2024E production of 140kt Cu, slightly above the low
end of the guidance range (137kt-176kt).
Precious Metals. With this note, we have factored in CIBC’s updated
outlooks for gold and silver prices. Notably, this update includes gold price
forecasts of $2,290/oz in 2024, $2,600/oz in 2025, $2,400/oz in 2026,
$2,200/oz in 2027, and $1,975/oz long-term.
Hudbay Minerals
• We model Q2/24E EPS of $0.04 and EBITDA of $178M, below consensus of $0.10 and
$208M.
• We forecast Q2/24E production of 31.3kt Cu at C1 cash costs of $1.34/lb Cu and 58.9koz
Au at C1 cash costs of $886/oz Au, compared to Q1/24 production of 34.7kt Cu and
90.4koz Au at C1 cash costs of $0.16/lb and $736/oz, respectively. We model weaker
copper production Q/Q attributable to lower throughput and grade at the Constancia mine
in Peru, while the fluctuation in copper cash cost is mainly driven by lower by-product
(gold) credit.
• We note waste stripping activities at Pampacancha should be higher from Q2/24-Q3/24,
impacting the availability of higher-grade material, and the approval to increase milling
throughput by 10% in Peru can allow Hudbay to push throughput rates to year-end and
potentially expand capacity in future years.
• Upcoming potential catalysts include updates on Copper World permitting and a potential
JV partner on the project, as well as continuing operational stabilization efforts at Copper
Mountain.