Q2 PREVIEW — PRODUCTION & EARNINGS INFLECTION EXPECTED IN H2
THE TD COWEN INSIGHT
Transferring Coverage
Due to an analyst leaving TD Cowen, Craig Hutchison is assuming primary coverage of Cameco (CCO-T), First Quantum (FM-T), Hudbay (HBM-T), Ivanhoe Mines (IVN-T), and Lundin Mining (LUN-T) with no changes in ratings.
Q2 Base Metals Preview
By and large, we expect production to be flat q/q with earnings for the group up ~15% q/q driven by the higher base and precious metals prices.
We expect production, earnings and FCF to improve materially starting in Q3/24 as key projects ramp towards design capacity. We have raised our target prices and multiples for several names, and we remain constructive on the growth outlook for the sector.
Short squeeze drives copper to record-highs, before retreating on weaker demand from China — Copper prices surged to a record $5.20/lb on May 20 driven by a short-lived squeeze on the COMEX as traders tried, but failed, to take advantage of pricing dislocations between different metal exchanges. Prices have since retreated as Chinese demand remains subdued, caused by a weak property market despite recent government stimulus measures. Even with the volatility, Q2/24 prices averaged $4.43/lb, the second highest all-time quarterly average, which should help support solid margins and provide some positive provisional pricing adjustment tailwinds (most meaningful for Lundin).
Minor revisions to our metals price deck — We have raised our copper price assumption
for 2024 to $4.30/lb (from $4.17/lb previously) to reflect our assumption of approximately flat pricing through the rest of the year. We have trimmed our 2024 uranium price forecast to $96/lb to reflect weaker-than-expected spot prices YTD. We remain optimistic that prices will start climbing through H2/24 and into 2025 as contracting activity picks up, with nuclear utilities seeking to lock-in their future long-term supply requirements against a backdrop of geopolitical supply disruption. We have also made minor revisions to our iron ore, nickel, and FX assumptions (Figure 1).
We expect flat copper production q/q, with growth accelerating in H2/24 — By and large, we expect copper production to be flat q/q in Q2/24, except for Taseko, which had significant downtime at Gibraltar due to planned maintenance and a three-week labour strike. Growth should accelerate in H2/24 with the several key projects ramping up, including Capstone's Mantoverde sulphide project, Ero's Tucuma mine, Ivanhoe's Kamoa- Kukula Phase 3 expansion, and Teck's QB2.
Our top picks in the space are Cameco, Hudbay, and Capstone.