Zacks Industry Outlook Highlights Southern Copper, Freeport-McMoRan, First Quantum Minerals and Energy Fuels
For Immediate Release
Chicago, IL – November 1, 2023 – Today, Zacks Equity Research discusses Southern Copper Corp. SCCO, Freeport-McMoRan Inc. FCX, First Quantum Minerals FQVLF and Energy Fuels UUUU.
Industry: Non-Ferrous Metals
Link: https://www.zacks.com/commentary/2175649/4-non-ferrous-metal-mining-stocks-countering-industry-headwinds
The prospects of the Zacks Mining - Non Ferrous industry look bleak as weak demand in China has been weighing on metal prices. Industry players are also grappling with inflated costs, labor shortages and supply-chain issues. However, the demand for non-ferrous metals is expected to be supported by the energy-transition trend, which will buoy the industry.
Against this backdrop, we suggest keeping a close eye on companies like Southern Copper Corp., Freeport-McMoRan Inc., First Quantum Minerals and Energy Fuels. 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 ore efficiently, safely and responsibly, precede the actual mining operations. Miners continuously seek 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 and through acquisitions.
What's Shaping the Future of the Mining-Non Ferrous Industry?
Volatility in Metal Prices is Concerning: Copper prices started this year on a strong note, fueled by investor expectations of a surge in demand after the reopening of the China economy. However, data from China continued to indicate a contraction in the country's construction and manufacturing sector. Also, concerns that economic support from the government will not be enough to add significant traction to industrial activity weighed on copper prices. Gold and silver prices also lost steam earlier this year, dragged by a strong dollar and elevated bond yields.
Nevertheless, gold and silver have picked up lately amid the heightened geopolitical tensions in the Middle East. Uranium has performed well, surging to a 12-year high in the third quarter of 2023 amid robust demand and tight supply. 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.
Labor Shortage, High Costs Remain Worrisome: The industry has been facing a shortage of skilled workforce to date, which has hiked wages. Labor-related disputes can be damaging to production and revenues. 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 the sales volume, increasing the 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: The 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 Bleak Prospects
The group's Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates dull prospects for the near term. The Zacks Mining - Non Ferrous industry, a 10-stock group within the broader Zacks Basic Materials Sector, currently carries a Zacks Industry Rank #209, which places it in the bottom 15% of 250 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 Versus S&P 500 & Sector
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 20.3% in the past year compared with the Zacks Basic Materials sector's rise of 6.2%. The S&P 500 has grown 6.8% 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 6.15X compared with the S&P 500's 10.70X. The Basic Materials sector's trailing 12-month EV/EBITDA is at 6.15X.
Over the last five years, the industry traded as high as 8.88X and as low as 3.41X, the median being 6.54X.
4 Mining - Non Ferrous Stocks to Keep an Eye On
Energy Fuels: The company completed the sale of 80,000 pounds of uranium to a major U.S. nuclear utility in the second quarter of 2023 — its first delivery under its new portfolio of long-term uranium sales agreements. The sale proceeds resulted in a gross profit of $2 million. In the first half of 2023, the company completed the sale of 380,000 pounds of uranium. UUUU plans to sell an additional 180,000 pounds of uranium this year for $54-$58 per pound, per its supply agreements with U.S. nuclear utilities.
This is expected to lead to a gross margin of 46-50%. The company is making 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.
To this end, it has made modifications and enhancements at the White Mesa Mill, which will produce 800-1,000 MT per year of neodymium-praseodymium (NdPr) oxide. This is expected to position Energy Fuels as one of the world's leading producers of NdPr outside China. UUUU shares have appreciated 10.6% in a year.
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 is pegged at 64 cents, suggesting a turnaround from the loss of 38 cents reported in fiscal 2022. The estimate has moved up 8.5% over the past 90 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.
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. 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.
Backed by its project pipeline, the company has set a production target of 1.6 million tons of copper by 2032. Given its constant commitment to increasing low-cost production and growth investments, the company is well-poised to continue delivering an enhanced performance. The company's shares have gained 44% in a year.
The Phoenix, AZ-based company has a trailing four-quarter earnings surprise of 11%, 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: The company'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. FCX is evaluating a large expansion at El Abra to process additional sulfide material.
The expansion at Morenci increased milling rates significantly. The production from Safford/Lone Star is approaching 300 million pounds of copper annually, ahead of the initial plan to produce more than 200 million pounds per year. FCX's focus on cost management and the reduction of debt levels is commendable. The company's shares have gained 4% in a year.
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. FCX has a trailing four-quarter earnings surprise of 21.9%, on average. The Zacks Consensus Estimate for the company's fiscal 2023 earnings per share has moved up 2.7% in the past 90 days. The company currently carries a Zacks Rank #3.
First Quantum Minerals: The company's platform of cash-generating and geographically diversified operating assets poises it well for growth. FQVLF recently acquired a 55% stake in the La Granja copper project in Peru, which is one of the largest undeveloped copper deposits in the world and has the potential to be a Tier 1 copper mine. In the third quarter of 2023, the company reported a 25% sequential increase in copper production at Cobre Panama, attributable to higher grades and higher tons milled.
At Cobre Panama, the CP100 Expansion seems to be on track to add 100 million tons by the end of 2023. At Kanshanshi and Trident, the copper output rose 14% and 18%, respectively, from the second quarter of 2023. At the Kansanshi mine, the ongoing S3 Expansion project will boost production and extend the mine life for two more decades. The Enterprise project is expected to start commercial production in 2024.
Headquartered in Toronto, Canada, First Quantum Minerals is a global mining company primarily producing copper, with secondary production in gold, nickel, zinc and cobalt. The Zacks Consensus Estimate for the company's fiscal 2023 earnings has moved north by 2% over the past 90 days. FQVLF has a trailing four-quarter earnings surprise of 68.1%, on average. The company currently carries a Zacks Rank of 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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