Report by Global Mining Research

David Radclyffe's copper coverage totals ~63% of global mine production. Copper supply continues to wrestle with many legacy headaches from 2025, mixed with the Iran conflict and its implications for diesel and sulphuric acid supply. There is therefore downside supply risk. However, the current oil disruption has implications for global growth and copper demand. Worryingly, David points out that copper inventories are rising rapidly. His coverage universe implies 0.9% annual contraction in refined copper supply in 2026, following a strong 2025. Weak supply growth for 2026, even with moderate demand growth, is at odds with strongly rising terminal market inventories, now at 1,267kt, adding to price risk. Copper is a crowded long trade, with caution warranted. The sector is not particularly cheap at spot 1.6x P/NPV10 and 9x EV/EBITDA. Antofagasta PLC is cut to HOLD. Preferred stocks include Lundin Mining Corp, KGHM Polska Miedz SA, Ivanhoe Mines Ltd, Grupo Mexico SAB de CV, Hudbay Minerals Inc and Teck Resources Ltd.

Report by Global Mining Research

The US-Israeli war with Iran and oil shock has resulted in some of the most volatile markets of recent times. Higher oil prices are clearly inflationary; however, the larger short-term risk for the miners is arguably the supply of liquid fuel. Slowing global growth could erode copper demand; the copper sector P/NPV10 and +1 year P/CF is trading close to previous tough levels with a spot FCF yield of 5.2% being attractive. Gold equities are still attractive with the market imputing lower spot prices today. The shares are cheap on a cash flow basis with a 6.9% spot FCF yield. Gold sector margins are still robust with better balance sheets compared to peers. Copper and gold equities have corrected, and value opportunities have emerged. Preferred coppers are Antofagasta PLC, Lundin Mining Corp and Ivanhoe Mines Ltd, whilst least preferred are First Quantum Minerals Ltd and Southern Copper Corp. Preferred golds are Barrick Gold Corp, Agnico Eagle Mines Ltd and Kinross Gold Corp.

Report by Global Mining Research

As expected, the first half of the year was met with weaker production, with companies in Global Mining Research’s coverage reporting flat figures of +1.5% and low capex. Costs increased some 4.8%, but this was offset by a ~US$0.60/lb increase in copper prices in the latest quarter. 60% of producers are expecting stronger H2 volumes, but Antofagasta, Ero Copper, Ivanhoe Mines and Capstone Copper are most at risk of missing 2024 guidance. Following the recent pullback and ahead of seasonally stronger Q4 prices, GMR continues to see the sector as attractive. Ratings have been raised for leveraged plays KGHM (to buy) and MMG (to hold).

Report by Global Mining Research

David Radclyffe recently published on the positive supply outlook for copper, setting out the scene for near- and medium-term market deficits and noted the lack of new projects to fill demand. In addition to the near-term price forecast, the long-term copper price forecast has been lifted to $4.00/lb in 2023 dollar terms. As a result, the sector trades on a prospective 2024 EV/EBITDA of 8.2x, and P/NPV10 of 1.3x. For equities, copper exposure remains in demand and is likely to drive more M&A. Investors may move along the equity risk curve to small caps. Capstone and Sandfire Resources are preferred in the small cap copper stocks, and Antofagasta and Grupo México in the mid/large ones.