For Immediate Release
Chicago, IL – May 22, 2023 – Today, Zacks Equity Research discusses Southern Copper Corp. SCCO, Freeport-McMoRan Inc. FCX, Coeur Mining CDE, Energy Fuels UUUU and Amerigo Resources ARREF.
Industry: Mining - Non-Ferrous Metals
Demand for non-ferrous metals is expected to be strong, mainly driven by the ongoing vehicle electrification and the increasing adoption of renewable energy, which will continue to support the Zacks Mining - Non Ferrous industry. Also, the impending demand-supply imbalance is expected to help boost metal prices.
Against this backdrop, we suggest keeping a close eye on companies like Southern Copper Corp., Freeport-McMoRan Inc., Coeur Mining, Energy Fuels and Amerigo Resources. These companies are poised to gain from their endeavors to build reserves and control costs, while investing in technology and improving production efficiency.
About the Industry
The Zacks Mining - Non Ferrous industry comprises companies that produce non-ferrous metals, including copper, gold, silver, cobalt, molybdenum, zinc, aluminum and uranium. These metals are utilized by various industries, including aerospace, automotive, packaging, construction, machinery, electronics, transportation, jewelry, chemical and nuclear energy.
Mining is a long, complex and capital-intensive process. Significant exploration and development to evaluate the size of the deposit, followed by the assessment of ways to extract and process the ore efficiently, safely and responsibly, precede actual mining. The miners search for opportunities to grow their reserves and resources through targeted near-mine exploration and business development. They strive to upgrade and improve the quality of their existing assets, internally, as well as through acquisitions.
What's Shaping the Future of the Mining-Non Ferrous Industry?
Demand-Supply Imbalance to Support Prices: Gold and silver prices have gained lately, aided by the ongoing uncertainty around global economic growth, which has driven the safe-haven demand for metals. Copper prices had started this year on a strong note, fueled by investor expectations of a surge in demand after the reopening of the China economy.
However, weaker-than-expected data from China has weighed on copper prices lately. Industrial production in China was up 5.6% in April, much lower than the market expectations of 10.9%. Property investment plunged 16.2% and home construction continued to decline. Despite this recent pullback in prices, the International Copper Study Group recently lowered its projection of growth of world copper mine production from 5% to 3% for 2023. This is mainly due to operational and geotechnical issues, equipment failure, adverse weather, landslides, revised company guidance in a few countries, and community actions in Peru. Per the body, copper is likely headed for a deficit of 114,000 tons in 2023. This will help boost copper prices.
Overall, industry players are dealing with depleting resources, declining supply in old mines and a lack of new mines. Development projects are inherently risky and capital-intensive. While demand has been strong, there will be an eventual deficit in metal supply, leading to a situation that will bolster metal prices. This, in turn, will favor the industry in the long haul.
Cost Control & Innovation to Increase Efficiency: The industry has been facing a shortage of skilled workforce to date, which hiked wages. Labor-related disputes can be damaging to production and revenues. The industry players are grappling with escalating production costs, including electricity, water and materials, as well as higher freight expenses and supply-chain issues. Since the industry cannot control the prices of its products, it focuses on improving sales volume, increasing operating cash flow and lowering unit net cash costs.
Industry participants are opting for alternate energy sources to minimize fuel-price volatility and secure supply. Miners are now committed to cost-reduction strategies and digital innovation to drive operating efficiencies.
Strong Demand to Support the Industry: Demand for non-ferrous metals will remain high in the future, given their wide use in primary sectors, including transportation, electricity, construction, telecommunication, energy, information technology and materials. The demand for electric vehicles and renewable energy is expected to be a significant growth driver for metals like copper and nickel in the years to come. The plan to overhaul and upgrade the nation’s infrastructure and promote green policies per the U.S. Infrastructure Investment and Jobs Act will also require a huge amount of non-ferrous metals.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright prospects for the near term. The Zacks Mining - Non Ferrous industry, a 12-stock group within the broader Zacks Basic Materials Sector, currently carries a Zacks Industry Rank #48, which places it in the top 19% of 251 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock-market performance and its valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Mining- Non Ferrous Industry has outperformed its sector and the Zacks S&P 500 composite over the past 12 months. The stocks in this industry have collectively gained 25% in the past year compared with the Zacks Basic Materials sector’s decline of 5.6%. The S&P 500 has gained 8% in the said time frame.
Industry''s Current Valuation
Based on the forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Mining- Non Ferrous stocks, we see that the industry is currently trading at 8.14X compared with the S&P 500’s 19.75X. The Basic Materials sector’s trailing 12-month EV/EBITDA is at 7.14X.
Over the last five years, the industry traded as high as 8.88X and as low as 4.80X, with the median at 7.02X.
5 Mining - Non Ferrous Stocks to Keep an Eye On
Amerigo Resources: The company delivered another strong operational performance in the first quarter of 2023, with the production of 16.5 million pounds of copper at a cash cost of $1.91 per pound. Copper production in the quarter was 4.5% above the company’s guidance. Quarterly molybdenum production was 0.3 million pounds, 5.2% above the guidance. Strong credits from higher molybdenum prices cut down cash costs by 11%, or 23 cents per pound, compared to ARREF’s annual cash cost guidance of $2.14 per pound.
The company expects copper production to be 62.3 million pounds in 2023. It outperformed its copper production for three consecutive years. Molybdenum production is expected to be 1 million pounds in 2023. Backed by its healthy cash balances, minimal debt and robust financial performance, the company continues its capital return strategy initiated in September 2021. ARREF declared its seventh consecutive quarterly dividend and continues its share buyback program.
Vancouver, Canada-based Amerigo Resources is an innovative copper producer with a long-term relationship with Codelco, the world’s largest copper producer. It receives and processes the waste stream from Codelco to recover copper and molybdenum. Amerigo produces copper concentrate, and molybdenum concentrate as a by-product at the MVC operation in Chile by processing fresh and historic tailings from Codelco’s El Teniente mine, the world's largest underground copper mine. The Zacks Consensus Estimate for the company’s fiscal 2023 earnings indicates year-over-year growth of 300%. The estimate has moved up 50% over the past 60 days. The company currently sports a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Energy Fuels: In the first quarter of 2023, UUUU completed the sale of 300,000 pounds of uranium to the U.S. Uranium Reserve, realizing total gross proceeds of $18.47 million, or $61.57 per pound. This sale resulted in a gross margin of 58%. The company expects to sell an additional 200,000-260,000 pounds of uranium this year, per its supply agreements with U.S. nuclear utilities, at an expected sales price of $54-$58 per pound, leading to gross margins of 46-50%. It has made significant progress in preparing four conventional uranium and uranium/vanadium mines to resume ore production.
The recent sale of the lower-priority Alta Mesa ISR Project will provide UUUU with significant additional cash and working capital, enabling it to ramp up its US industry-leading uranium and rare earth element (“REE”) production. The company continued to focus on growing its REE business. To this end, it has begun modifications and enhancements at the White Mesa Mill that will produce up to 1,000 MT per year of neodymium-praseodymium ("NdPr") oxide by late 2023 or early 2024. UUUU plans to take up this figure to 3,000 MT by 2026.
This Lakewood, CO-based company, together with its subsidiaries, engages in the extraction, recovery, exploration, processing, permitting, evaluation, and sale of uranium, vanadium and REE. The Zacks Consensus Estimate for the company’s fiscal 2023 earnings indicates year-over-year growth of 253%. The estimate has gone up 263% over the past 60 days. The company currently carries a Zacks Rank #2 (Buy).
Southern Copper: The company has the largest copper reserves in the industry and operates world-class assets in investment-grade countries, such as Mexico and Peru. Its constant focus on increasing low-cost production is commendable. SCCO expects copper production in 2023 to reach 940,000 tons, suggesting 5% growth from the 2022 reported levels. This will be aided by the Peruvian production coming back on track, and new production at Pilares, El Pilar and Buenavista.
The company’s capital investment program for this decade exceeds $15 billion and includes investments at the Buenavista Zinc, Pilares, El Pilar and El Arco projects in Mexico, and at the Tia Maria, Los Chancas and Michiquillay projects in Peru. Southern Copper will gain from its efforts to grow in Peru, given that the country is currently the second-largest producer of copper globally and holds 13% of the world’s copper reserves.
The Zacks Consensus Estimate for the Phoenix, AZ-based company’s fiscal 2023 earnings has been revised upward by 15.7% over the past 60 days. The estimate indicates year-over-year growth of 14.7%. SCCO has a trailing four-quarter earnings surprise of 7%, on average. The company, which engages in mining, exploring, smelting, and refining copper and other minerals, currently carries a Zacks Rank #3 (Hold).
Freeport-McMoRan: FCX’s exploration activities near existing mines, which are focused on expanding reserves, will drive growth. It is expected to benefit from the ongoing large-scale concentrator expansion project at Cerro Verde that will likely result in incremental annual productions of 600 million pounds of copper and 15 million pounds of molybdenum. Cerro Verde's expanded operations will also offer cost efficiencies, and large-scale and long-lived reserves. It is assessing a large-scale milling operation at El Abra to process additional sulfide material.
The expansion at Morenci increased milling rates. The Lone Star project in eastern Arizona has been completed and is on track to produce more than 200 million pounds of copper annually. The company is looking to advance studies for potential expansions and long-term development options for its large-scale sulfide resources at Lone Star. It is also ramping up underground production at Grasberg in Indonesia, resulting in a spike in milling rates. The focus on cost management and reduction of debt levels is commendable.
Based in Phoenix, AZ, Freeport-McMoRan is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; and smelting and refining copper concentrates. The Zacks Consensus Estimate for FCX’s earnings for 2023 has moved up 2% over the past 30 days. The company currently carries a Zacks Rank #3.
Coeur Mining: The company reported total production of 69,039 ounces of gold and 2.5 million ounces of silver in the first quarter of 2023. The numbers were higher than expected, aided by solid performances at Palmarejo, Rochester and Wharf. Production levels are expected to increase in the second half of the year due to mine plan sequencing, as well as the anticipated ramp-up and commissioning of the Rochester expansion.
As of Mar 31, 2023, the Rochester project was 82% completed. Approximately $634 million of the estimated project capital has been committed, of which $560 million has been incurred. CDE’s solid balance sheet positions it well to support the remaining Rochester expansion capital requirements.
This Chicago, IL-based company explores, develops, and produces gold, silver, zinc and lead properties with five operations in the United States, Mexico and Canada. The Zacks Consensus Estimate for the company’s fiscal 2023 earnings indicates year-over-year growth of 53%. The estimate has moved up 50% over the past 60 days. The company currently carries a Zacks Rank #3.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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