“Looking out into the rest of 2022, we remain neutral on the industrial commodities, again with a preference for copper over those commodities whose demand drivers are directly related to steel production. As with almost every other asset class, the pricing narrative has been dominated by the US Federal Reserve, the trajectory of US interest rates, and the implications of this trajectory on asset pricing, the USD and the global economy (particularly emerging markets).
While we do not profess to be economists, our view is that the current dot plot is priced in, the Fed is unlikely to get more aggressive than current projections, and the USD has likely peaked. Against this backdrop, the physical copper and zinc markets are coiled springs. Despite ample concentrate production, refined markets are extremely tight due to ongoing smelter capacity constraints related to power pricing and rationing. With 3 days of refined metal availability on the exchanges, we believe both markets are vulnerable to a supply shock, which could very likely take the form of further smelter curtailments as winter approaches in the Northern Hemisphere. In addition, we believe that any indications of a pivot from the Fed will result in significant rallies in copper and zinc pricing as the market re-focuses on fundamentals.” He named three top picks:
* Ero Copper Corp. “buy” and $21.50 target, up from $17
Analyst: “ERO, where margins are strong on current production, growth capex is on or under budget on both major projects, and exploration results on the nickel front are gathering momentum. We view the November 7th Investor and Analyst update as a potentially strong catalyst for the shares.”
* Ivanhoe Mines Ltd. “buy” and $12 target, up from $11
Analyst: “IVN, where the ongoing stellar ramp-up of Kamoa-Kakula coupled with an expanded Phase 3 plan and drill results from the Western Forelands should be meaningful tailwinds for the share price. We also see a non-trivial probability of a consolidation by its two largest shareholders in the coming months.”
* Filo Mining Corp. (FIL-T, “speculative buy” and $25 target)
Analyst: “FIL, where the ongoing drill campaign continues to deliver exceptional results and a pending resource on the sulphides should crystallize the scale/quality of the deposit.”