Base metals prices and the share prices of Canadian base metals producers are expected to remain flat throughout the third quarter of 2022, according to Stifel GMP analysts, who maintain their 'Buy' ratings on six senior producers and three junior producers.
In a note to clients on October 16, the analysts wrote that nickel is the exception, up 3% quarter over quarter. The price of base metals saw a rapid drop starting in June, they said.
“For 2022, we are forecasting an average copper price of $3.98/lb (up from $3.90/lb), a zinc price of $1.58/lb (slightly up from $1.55/lb), and a nickel price of $11.79/lb (roughly unchanged) for 2022. For metallurgical coal we are now forecasting an average price of $363/t (marginally up from $355/t, previously),” the analysts wrote.
READ: Stifel GMP analysts repeat ‘Buy’ rating and C$1.20 price target for The Valens Company on robust 3Q results
Stifel forecasts a C$7.50 per share price target for Capstone Copper, $39 for First Quantum Minerals (TSX:FQM), $44 for Freeport McMoRan, $12 for Hudbay Minerals, 12.50 for Lundin Mining and $61 for Teck Resources on the senior producer side.
Among the juniors, the analysts forecast a per share target price of $27 for Ero Copper, and $2.50 each for Copper Mountain and Taseko Mines.
The analysts added that, despite the flat metal prices, some companies should see their share prices go higher after being oversold in 2Q: Ero Copper, Taseko, Teck and Hudbay.
“Inflation and the margin eroding impact of rising costs was top of mind in 2Q and with some companies revising costs higher at the time, combined with some consumable prices, such as diesel, below their peaks, we do not expect cost pressures to be as topical, with some companies potentially coming in better than our expectations,” the analysts wrote.
Most companies are just now starting the process of formulating 2023 targets, according to the analysts.
“Given the uncertain macro outlook, however, we expect most companies will wait to see how metal prices move over the next couple of months before committing to new targets,” they wrote.
The price of nickel gained marginally due to supply concerns from Russia’s war in Ukraine, plus demand from the EV battery market. The analysts said that in the medium to longer term, they are bullish as the green energy market will drive demand for metals and push the prices higher.
The analysts noted the price of copper edged lower in the quarter, and short-term investor sentiment and global economics caused high volatility in copper prices. Other factors included a persistent depression in Chinese consumption plus issues from key Latin American mining operations, leading to expectations there will be an increase in market surplus.
Copper production analysis shows two companies at the opposite ends of consensus versus Stifel’s estimates. Stifel put Freeport McMoran’s production at 13% above consensus, but Copper Mountain showed a 23% reduction between Stifel’s expectations and consensus.
“Relative to consensus, we are outliers for Freeport McMoran and Copper Mountain. Although we expect consensus estimates to get updated in the coming days, we note that our production forecasts for Freeport are above street expectations, while those for Copper Mountain are below and the remainder roughly in-line,” the analysts wrote.
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