RBC Dominion Securities analyst Sam Crittenden warns falling base metals prices will be significant headwind to second-quarter financial results for North American producers.
“Copper and the equities remain range bound as demand concerns from slowing global growth and weak economic indicators from China are offset by hopes of stimulus and some positive signals from the physical market,” he said. “In the near term, we could be stuck in this $3.75/lb range for a few months as we await signs of improvement in China, which may not come until after the slow summer construction period (June-August), and the lagged impact of stimulus.
“This volatility can create opportunities, and we expect equity valuations to be supported the positive multi-year story for copper and M&A speculation in the sector .... North American base metals equities were down 5 per cent in Q2/2023 vs. copper down 7 per cent and valuations remain close to historical averages at 0.8 times NAVPS [net asset value per share], 6.2 times 2023 estimated EBITDA, and 8 per cent 2023 estimated FCF at spot prices. Industrial metals were down sharply in Q2 (copper down 7 per cent, zinc down 19 per cent, nickel down 14 per cent), offset somewhat by gold up 5 per cent and silver up per cent.”
In a report released Thursday in which he made reductions to his second-quarter, full-year 2023 and 2024 earnings projections. Mr. Crittenden did not make rating or target price adjustments. They are currently:
* Champion Iron Ltd. with an “outperform” rating and $8 target. Average: $7.59.
Analyst: “For Champion, we expect Q2 sales to be weaker as wildfires forced a 2-week rail shutdown; however, the focus remains on the ramp up to 15Mtpa by August.”