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Non Ferrous Metal Mining Industry Growth Prospects Encouraging

Madhurima Das

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 a wide array of industries that include aerospace, automotive, packaging, construction, industrial machinery, electronics, transportation, jewelry, chemical, and nuclear energy.

Let us take a look at the three major themes in the industry:

  • The Mining - Non Ferrous industry is subject to fluctuations based on changes in global economic conditions and end-use markets. Metal prices have been impacted by the market uncertainty stemming from the U.S-China trade war and weakening growth in China — the world’s largest consumer of metals. Since the industry cannot control the prices of these products, it focuses on improving sales volume, operating cash flow and lowering unit net cash costs. Over the past few years, miners have trimmed capital spending and focused on cost-reduction strategies and digital innovation to drive operating efficiencies.
     
  • The industry is currently plagued with escalating production costs. Labor forms the bulk of input costs for the mining industry. The industry has been facing a shortage of skilled workforce that led to a spike in wages. Moreover, labor-related disputes can be damaging to production and revenues. Miners are also feeling the pinch of higher fuel prices. Electricity outages and shortages in several countries are adding to woes. In fact, the industry participants are opting for alternate energy sources in order to minimize fuel-price volatility and secure supply.
     
  • Notably, the industry players are currently dealing with depleting resources, declining supply in old mines and lack of new mines. Development projects are inherently risky and capital intensive. Meanwhile, demand for non-ferrous metals remains high given their wide usage in primary sectors, such as transportation, electricity, construction, telecommunication, energy, information technology and materials. However, demand is on the rise due to requirement from emerging markets, and economic activity in the United States and other industrialized countries. So, there will be an eventual deficit in metal supply that could aid in bolstering metal prices, which bodes well for the industry in the long haul.
     

Zacks Industry Rank Indicates Bright Prospects

The Zacks Mining - Non Ferrous Industry is a 10-stock group within the broader Zacks Basic Materials Sector. The industry currently carries a Zacks Industry Rank #87, which places it at the top 37% of more than 250 Zacks industries.

The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry's positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate.

Our proprietary Heat Map shows that the industry’s rank has remained in the top half in three of the past seven weeks.



Before we present a few Mining – Non Ferrous stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Lags S&P 500, Outperforms Sector

The Mining- Non Ferrous Industry has underperformed the Zacks S&P 500 composite but outperformed its own sector over the past year. The stocks in this industry have collectively gained 4% in the past year, while the Basic Materials Sector declined 6.6%. Meanwhile, the Zacks S&P 500 has rallied 15.3% in the same timeframe.

One-Year Price Performance



Mining- Non Ferrous Industry’s Valuation

On the basis of forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Mining- Non Ferrous stocks, we see that the industry is currently trading at 8.21X compared with the S&P 500’s 12.22X. The Basic Materials sector’s forward 12-month EV/EBITDA is at 5.62X. This is shown in the charts below.

Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)



Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)


 
Over the last five years, the industry has traded as high as 8.31X and as low as 4.97X, with the median being at 6.28X.

Bottom Line

Despite the trade war and slowdown in global growth impacting investors’ confidence and commodity markets, the long-term prospects for non ferrous metals remain solid. Robust demand from end-use sectors like automotive, aerospace, construction and packaging, among others, bodes well for metals. Additionally, gold and silver have long been considered a hedge against financial or political uncertainty. Overall, the long-term fundamentals of metals remain positive, supported by their crucial role in the global economic development and a challenging supply environment.

We are presenting one stock with a Zacks Rank #2 (Buy) and three stocks with a Zacks Rank #3 (Hold) that are well poised to grow. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arconic Inc. (ARNC): This NY-based company carries a Zacks Rank #2. The Zacks Consensus Earnings Estimate for fiscal 2019 indicates year-over-year growth of 54%. The estimate has moved north by 5% over the past 90 days. The company has an average positive earnings surprise of 10.73% in the trailing four quarters.

Price and Consensus: ARNC


 
Southern Copper Corporation (SCCO): This Phoenix, AZ-based company company carries a Zacks Rank #3. The Zacks Consensus Earnings Estimate for fiscal 2019 indicates year-over-year growth of 1.00%.

Price and Consensus: SCCO



Aluminum Corporation of China Limited (ACH): This Beijing, China- based company carries a Zacks Rank #3. The Zacks Consensus Earnings Estimate for fiscal 2019 indicates year-over-year growth of 2300%.

Price and Consensus: ACH



Coeur Mining, Inc. (CDE): This Chicago, IL-based company carries a Zacks Rank #3. The company has delivered an average earnings surprise history of 17.50% in the trailing four quarters.

Price and Consensus: CDE




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Southern Copper Corporation (SCCO) : Free Stock Analysis Report
 
Coeur Mining, Inc. (CDE) : Free Stock Analysis Report
 
Arconic Inc. (ARNC) : Free Stock Analysis Report
 
Aluminum Corporation of China Limited (ACH) : Free Stock Analysis Report
 
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