Believing the “global drive to diversify and decarbonize has received an unexpected push from Russia,” Stifel’s mining equity analysts have an bullish view of base metals moving forward.
“Commodity prices are gaining, with some industrial commodity prices climbing to dizzying all time highs in recent weeks,” they said in a research note released Thursday. “While the invasion of Ukraine by Russia has without question exacerbated some supply and demand concerns and introduced some extreme price volatility, we firmly believe that these actions only accelerated a politically and economically driven price response that was already solidly underway. With governments across the globe now more than ever set to enhance investments in renewable electricity and related infrastructure, which are more copper intensive than fossil fuel powered sources, we have an increasingly optimistic outlook for many commodities, copper in particular.”
“As Germany’s Economy Minister Mr. Habeck said this past week with regards to reducing reliance on Russian supplied fossil fuels,’ the construction of electricity networks, LNG terminals and renewable energy must be done at ‘Tesla’ speed’. Regardless of the outcome in Eastern Europe, we believe most governments, companies and individuals to remain steadfast in their desire to see a more diversified, renewable and stable energy supply, with the current supply and price shock and volatility a stark reminder of the high cost of fossil fuel dependence.”
The analysts raised their near-term base metals and metallurgical coal price forecasts as well as their long-term copper price projection (to US$4 per pound from US$3.75). That led them to raise their target prices for shares of primary producers.
“On average, our NAVPS and target prices for the copper miners have moved up by 12 per cent and 13 per cent, respectively, with First Quantum, Capstone and Teck having the biggest bump (Teck benefited as we also adjusted our met coal price higher for 2022 and 2023),” they said. “Amongst the precious metal producers with base metals exposure, our estimates for Dundee Precious Metals saw the greatest move higher, with Barrick also seeing a positive move higher.
“Strong free cash flows to continue to support increased returns to shareholders, while growth projects (there aren’t really that many) are likely to see a renewed focus. Now more than ever, we see permitting and environmental and social concerns to projects advancing as the main determinant impacting whether a project gets built or not. At current commodity prices, we believe most projects are capable of generating positive returns, with investments in community engagement in our view one of the single most important factors impacting a project’s ability to get built.”
For senior producers, their changes are:
- Lundin Mining Corp. ( “hold”) to $14 from $13.25. Average: $13.17.