TOL - 21st Apr, 2023
Buy Hold Sell: 3 hot copper stocks (and 2 high-conviction calls)
In this episode, Eley Griffiths Group's Tim Serjeant and Tribeca Investment Partners' Todd Warren analyse five resources stocks.
According to global consulting house McKinsey, the electrification of the global economy will increase copper demand to 36.6 million metric tonnes per annum by 2031. Currently, supply projections point to a pathway to 30.1 million metric tonnes, with a few million metric tonnes still yet to be found.
Just four years later, S&P Global Market Intelligence projects that a further 20 million metric tonnes (50 million in total) will be required. For context, production from all the copper mines around the globe was just 22 million metric tons in 2022.
That said, there are mixed forecasts on the outlook for copper prices. Goldman Sachs believes that copper prices will soar from US$8500/t to US$11,000/t this year, increasing to US$12,000/t in 2024.
Meanwhile, Australia's Department for Industry, Science and Resources recently predicted that copper prices would average US$9,000/t in 2022 as new supply meets rising demand. By 2028, our local government believes prices could grow to US$9,200 - a long way off from Goldman Sachs' bullish call.
So how are fund managers investing in the copper thematic?
In this episode, Bell Direct's Grady Wulff was joined by Eley Griffiths Group's Tim Serjeant and Tribeca Investment Partners' Todd Warren for their analysis of three of the few copper stocks remaining on the ASX.
And for a bit of fun, we also asked them to name their highest-conviction call for the next five years - two stocks that have already soared more than 20% and 50% respectively since the beginning of the year.
Note: This episode was filmed on Wednesday 19 April 2023. You can watch the video, listen to the podcast, or read an edited transcript below.
Edited Transcript
Grady Wulff: Hello and welcome to Livewire's Buy Hold Sell, I'm Grady Wulff. And today we'll be analysing three of the few copper stocks listed on the ASX, as well as two stocks the fundies have brought us, their favourites, and they're backing over the next five years. To do this, I'm joined by two experts, Tim Serjeant from Eley Griffiths Group, and Todd Warren from Tribeca. Gentlemen, thanks for joining me.
Sandfire Resources (ASX: SFR)
I thought we'd start today with Sandfire Resources. Now, it's the biggest pure-play copper exposure left on the ASX after the BHP OZ Minerals acquisition in very recent times. I'll start with you, Todd. Is it a buy, hold, or a sell?
Todd Warren (HOLD): I'm going to go hold. You're right, it's the go-to name now with OZ out of the picture. They do still have a pretty attractive global portfolio of copper assets, and they are, well, insofar as the Australian market goes, of scale, so there's certainly an institutional attractiveness to it from that perspective. But it's more fully priced than it was. And for that reason, I'm going hold.Grady Wulff: With a market cap of $3.2 billion, its share price is up about 25% in the last 12 months. Tim, is it a buy, hold, or a sell?
Tim Serjeant (SELL): I'm going to say sell, Grady. It's the go-to copper stock, but not at any price. Positive developments in the last six months, China reopening, a new CEO, a fixed balance sheet, and OZ departing have clearly helped. But I think with Motheo commissioning coming up, the valuation and the risk-reward aren't what I'd like, so sell.
Aeris Resources (ASX: AIS)
Grady Wulff: Now Aeris Resources is next up. Market cap of $435 million. Quite a lot smaller than Sandfire. Has copper, gold and zinc as part of its assets. So Tim, buy, hold or sell?
Tim Serjeant (HOLD): It's a hold. I respect the board and management. I think they've done a really terrific job. But I've learnt the hard way that multi-mines and multi-commodities in small companies are tough places to be. And I think the Round Oak acquisition last year made life a little bit more difficult in that regard. The valuation's appealing, but for me, it's a hold.
Grady Wulff: Todd, they completed a seven-for-one share price consolidation last year in July. It's been a rocky ride since then. Buy, hold or sell for Aeris?
Todd Warren (SELL): We're a sell. Like Tim, we actually quite like the management team, but a suite of small assets is difficult, and it takes up a lot of management time, and they really haven't hit their stride with the drill bit just yet, so it's a sell.
AIC Mines (ASX: A1M)
Grady Wulff: And the next one is AIC Mines. Smaller market cap, $189 million. And it recently announced a significant increase in mineral resources and ore reserves at its Eloise Copper Mine. Buy, hold, or a sell for you, Todd?
Todd Warren (BUY): It's a buy. So a shift of theme there. We like it. We think the management team there have got a history from Evolution (ASX: EVN). They built Evolution through M&A, and they're doing much the same thing with AIC. And with Eloise, obviously, in production, so they've got some cash flows and they've got a chance to consolidate that area of Queensland where they're starting to produce already, so we like it.
Grady Wulff: Tim, buy, hold, or sell? Shares are down 5% over the last 12 months, does that tempt you in any way?
Tim Serjeant (BUY): Agree with Todd, I think it's a buy. You touched on Aaron Colleran and his track record at Evolution, the chairman as well, Josef El-Raghy was pivotal in building sentiment in Egypt, with the Sukari Mine. So the track record there of building and developing and growing bigger companies is the thing that attracts us. And that's right, as Todd mentioned, I think you're not necessarily there for what Eloise and Jericho can bring from a copper output perspective. That's attractive and there's value there, but it's what it could be.
Iluka Resources (ASX: ILU)
Grady Wulff: Now, we asked our fundies to bring along one stock they are bullish on or have high conviction in for the next five years. Tim, what have you brought for us today?
Tim Serjeant: I've brought Iluka, Grady, and most of the viewers would know Iluka is a zircon and titanium feedstock. And it's got a shareholding in Deterra, which is an iron ore royalty company off the back of BHP. But that's not what I'm pitching.
I think the inherent value in Iluka that's not captured today, but I think will be in five years' time, is the value of the Eneabba Rare Earths Refinery, which they're building in conjunction with the federal government. If we fast-forward to that timeframe, you'll have a cracking and leaching and separation facility. So something equivalent to what Lynas (ASX: LYC) has in Malaysia, but in Australia.
Similar in output terms, third-party user access. And from a strategic point of view, obviously being in Australia, I think that's a big tick. From a scarcity point of view as well, there are not many of those facilities currently around or nor will there be in that timeframe. So I think there's a material rerating opportunity for Iluka if it can execute.
Alpha HPA (ASX: A4N)
Grady Wulff: Todd, what's your pick for the next five years?
Todd Warren: We've gone with a lesser-known name called Alpha HPA. The ticker is A4N here in Australia. They've actually just commenced producing high-purity alumina, which is a precursor material used both in batteries but also in sapphire glass, LCD, lighting, etc. And that's going to be a big thematic in the decarbonisation space.
These guys have some funding from the government as well, albeit not to the tune of Iluka, but building their first-stage facility up in Gladstone, now in production. They've delivered on their promises to date, and there's a lot of news flow between now and the end of the year in regard to their next stage - the big expansion. And so far, they've ticked all the right boxes. It's run a fair way since we talked about this stock, but we still like it.
Grady Wulff: Well, you heard it here first from the fundies. That's all we have time for today. I hope you enjoyed that episode of Buy Hold Sell as much as we did filming it. If you did, why not give it a like? Remember to subscribe to our YouTube channel. We're adding so much great content every single week.
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Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
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Livewire Markets
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
Expertise
Livewire Markets
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
Expertise
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