In a research report titled Grey skies are gonna clear up (Put on a happy face), Canaccord Genuity’s Dalton Baretto expressed optimism for the fortunes of base metals producers moving forward.
“Q1/23 was an eventful quarter, from both a macro and micro perspective,” said the analyst. “2023 kicked off with an unleashing of the ‘animal spirits’ in the market, with a significant rally in commodities and related equities predicated on the Chinese economy re-opening, a declining USD, anticipation of a Fed pivot, and ongoing supply disruptions. We then saw an inflection point in the early part of February as essentially all these factors reversed.
“Looking out into the rest of 2023, we expect physical demand for most commodities to improve as the Chinese reopening gathers pace and typical seasonal factors kick in. That said, we also expect supply of most commodities to improve given that early disruptions have eased. We expect sentiment (as reflected in futures markets) to remain dampened as long as dark clouds remain over the global economy; however, we view positive economic surprises out of China as a non-trivial probability that could serve as significant tailwinds despite the broader macroeconomic picture. In general, however, our base case view is for the industrial commodities to remain largely range-bound over the rest of this year.”
Mr. Baretto upgraded a pair of stocks to “buy” recommendations from “hold” previously based on “meaningful” positive implied returns to his revised target prices. They are:
* Champion Iron Ltd. with a $7.50 target, up from $7. Average: $8.01.
“At CIA, we believe ongoing progress on the Phase II ramp-up at Bloom Lake coupled with ongoing studies to unlock value at the property should result in the share price trading back up toward our revised target price,” he said.
* Lundin Mining Corp. with a $12 target, up from $9.25. The average on the Street is $9.92.
“At LUN, in addition to our higher copper and gold price decks, we believe the recent acquisition of a 51-per-cent interest in Caserones sets the stage for a JV-structure at Josemaria that could significantly de-risk LUN’s interest in the project,” he said.