For Immediate Release
Chicago, IL – April 20, 2021 – Today, Zacks Equity Research discusses Mining – Non-Ferrous, including Southern Copper Corporation SCCO, Freeport-McMoRan Inc. FCX and Kaz Minerals PLC KZMYY.
After bearing the brunt of weak demand last year primarily due to the COVID-19 pandemic, the Zacks Mining – Non Ferrous industry has made a strong comeback aided by prospects of improving demand stemming from the ongoing global economic recovery.
Miners including Southern Copper Corp, Freeport-McMoRan and Kaz Minerals are poised well to capitalize on this trend. Their concerted efforts to control costs and invest in technology will increase efficiency, thereby bolstering margins.
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 a wide array of industries that include aerospace, automotive, packaging, construction, industrial machinery, electronics, transportation, jewelry, chemical, and nuclear energy.
What’s Shaping the Future of Mining-Non Ferrous industry
Prospects of Higher Demand Stemming From Global Economic Recovery: The coronavirus pandemic had impacted non-ferrous metal prices last year barring gold, which gained on the back of its safe-haven demand. Also, miners had to curtail or stop production to adhere to restrictions imposed by various governments to stem the spread of COVID-19.
Slowdown in industrial activity severely impacted demand for industrial metals like copper and silver. However, commodity prices have since turned around, courtesy of improving industrial activity globally, rollout of vaccines, optimism regarding a strong US economic growth and robust demand from China. Further, President Biden’s plan to spend $2 trillion to overhaul and upgrade the nation’s infrastructure and promote green policies will require huge amount of non-ferrous metals.
Cost Control & Innovation to Increase Efficiency: The industry has been facing a shortage of skilled workforce, which has led to a spike in wages. Moreover, labor-related disputes can be damaging to production and revenues. Since the industry cannot control the prices of its products, it focuses on improving sales volume, operating cash flow and lowering unit net cash costs.
The industry participants are also opting for alternative energy sources in order to minimize fuel-price volatility and secure supply. Miners are now committed to cost-reduction strategies and digital innovation to drive operating efficiencies.
Impending Demand and Supply Imbalance: 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. Demand for non-ferrous metals will remain high in the future given their wide usage in primary sectors including transportation, electricity, construction, telecommunication, energy, information technology and materials.
While demand remains 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.
Zacks Industry Rank Indicates Bright Prospects
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. The Zacks Mining – Non Ferrous industry, which is a nine stock group within the broader Zacks Basic Materials Sector, currently carries a Zacks Industry Rank #98, which places it at the top 39% of 256 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.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since the beginning of this year, the industry’s earnings estimate for the current year has gone up 87%.
Before we present a few 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 Versus Broader Market
The Zacks Mining- Non Ferrous Industry has outperformed the Zacks S&P 500 composite and its own sector over the past year. The stocks in this industry have collectively soared 219.6% in the past year compared with the S&P 500’s and its sector’s rally of 78.1% and 51.2%, respectively.
Industry’s Current 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 6.98X compared with the S&P 500’s 15.80X. The Basic Materials sector’s forward 12-month EV/EBITDA is at 29.38X.
Over the last five years, the industry has traded as high as 8.88X and as low as 4.80X, with the median being at 6.47X.
3 Mining-Non Ferrous Stocks to Keep an Eye On
Southern Copper: This Phoenix, AZ based company engages in mining, exploring, smelting, and refining copper and other minerals.
The company has the largest copper reserves in the industry and operates high-quality, world-class assets. Its constant focus on increasing low-cost production is commendable. The company will benefit 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.
It is worth mentioning that Peru’s national output is expected to grow to 225000 tons in 2022 and 245000 tons in 2023. Notably, Southern Copper’s total investment program in Peru runs to $7.9 billion. The recent rally in copper and silver prices bode well for the company.
The Zacks Consensus Estimate for the company’s earnings in 2021 suggests year-over-year growth of 66%. The estimate has moved up 20% in 90 days’ time. It has a long-term estimated earnings growth rate of 17.8%. The company’s shares have gained 54.6% in the past six months. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Kaz Minerals: This U.K.-based company and its subsidiaries engage in mining and processing copper and other metals (gold, silver, zinc) primarily in Kazakhstan and Kyrgyzstan.
The company is well positioned to grow on the back of its large scale, low cost open copper pit mines. Its constant focus on applying modern technology to develop deposits has helped build a portfolio of highly profitable mines with low operating costs. The Aktogay expansion project carrying a total budget of $1.2 billion is expected to commence production in late 2021.
It is anticipated to boost the company’s copper production by 80,000 tons in the 2022-2027 time period and 60,000 tons thereafter. The bankable feasibility study for the Baimskaya copper project is expected to be completed in the first half of 2021. Baimskaya is one of the world’s largest undeveloped copper resources with the potential to be a large scale, low cost open pit copper mine.
The Zacks Consensus Estimate for the company’s earnings for the current fiscal year has moved up 8% over the past 90 days. Its shares have appreciated 58.4% over the past six months. The stock carries a Zacks Rank #2 (Buy).
Freeport-McMoRan: This Phoenix, AZ-based company is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; and smelting and refining of copper concentrates.
Freeport is conducting exploration activities near existing mines with a focus on opportunities to expand reserves. The company will benefit from the ongoing large-scale concentrator expansion project at Cerro Verde that will provide incremental annual production of around 600 million pounds of copper and 15 million pounds of molybdenum.
It recently completed the Lone Star copper leach project and is on track to produce around 200 million pounds of copper annually. The company's effective cost management and efforts to reduce debt levels appear encouraging. Higher copper prices will also drive results.
The Zacks Consensus Estimate for earnings for fiscal 2021 indicates year-over-year improvement of 391%. The estimate has been revised upward by 22% over the past 90 days. Shares of the company, which carries a Zacks Rank #3 (Hold), has soared 116.5% over the past six months. The company has a long-term estimated earnings growth rate of 26.5%.
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