With copper hitting an all-time high, the second quarter of 2024 was “another positive one” for Canadian base metals producers, according to Stifel analyst Cole McGill.
“Commodity price increases continue to translate into equity gains, with our coverage up an average 18 per cent in the quarter and now showing an average year-to-date gain of 49 per cent (compared to 8.4 per cent for the TSX),” he said. “This outperformance is partly thanks to multiple expansions as investors have turned optimistic about the rising cash spread between commodity prices and costs. We will continue to focus on costs this quarter for a read-through on whether this trend is likely to continue, with implications for free cash flow generation in H2 across our coverage, which we expect to be production back-half weighted.”
In a research report released Monday, Mr. McGill said he continues to see “a constructive asymmetric outlook” for copper, “as even amidst a snoozing Chinese recovery, copper concentrate tightness, and scarce new quality sources of supply entering the market provide a backdrop where price risk is to the upside.”
“Copper’s relative resilience in the face of China weakness could mean more upside if and when the Chinese recovery ever gains traction,” he said. “We saw a hint of this on July 5th when the Yangshan copper premium crossed into positive territory after being in a deficit since mid-May. The metric, which measures the premium paid in the spot market in Shanghai vs the London Metals Exchange, is typically seen as an indicator of Chinese physical demand and traders pounced on the news by bidding up the copper price as high as 3.8 per cent that day.
“The potential for demand upside continues to be met with a tight supply picture, where TC/RCs indicate a tight market, alongside legacy South American assets struggling to keep up.”
Mr. McGill made a pair of target changes on Monday:
- Capstone Copper Corp. ( “buy”) to $12 from $11.50. The average is $13.48.
- Hudbay Minerals Inc. ( “buy”) to $16 from $15. Average: $16.46.
“With volatility comes opportunity. Increased copper price volatility in the quarter could translate to increased revenue variability, depending on marked-to-market timing of shipments. The overall positive copper price trend in the quarter should also mean positive provisional pricing adjustments as concentrate shipments originally marked to Q1 prices are priced upon arrival at their smelter destinations,” he said.