Buy Hold Sell: Copper's time has finally come (and 2 big buys)

Matt Michael: Gday, everyone. Welcome to Buy Hold Sell, brought to you by Livewire Markets. My name's Matty Michael, and Livewire have once again allowed Money of Mine to bring a bit of class into a resource spectacular for Buy Hold Sell. Today, we're on to the wire, copper. And with me to go into everything on copper, we've got Dave Franklyn from the Argonaut Natural Resources Fund and Sam Berridge from Perennial. 

Lads, the copper story, jeez, it's been going four or five years or so, the bullish thematic around shortage of copper supply, declining grades in South America, but it just hasn't really come to fruition yet. We haven't really cracked over that US$5/lb mark. Dave, are you still hanging in there, mate?

Copper outlook

David Franklyn: We are. We still believe in the copper story. I think it's probably worth just adding some context. Copper is a big market. It's 25 million tonnes per year and really very entwined with global industry. And obviously, where the focus has been more recently has been on the whole EV thematic and perhaps supporting data centres and all that kind of stuff. But ultimately, it's big and diverse, and so it doesn't have the same level of volatility as some of the other commodities, which are smaller like a lithium or a nickel or rare earths, which have been hammered over the last year. Matt Michael: Sammy, the data centres have just added another layer of complexity when you're trying to model and predict what copper is going to do, and a lot of it is around high interest rate environments, global growth, what China's doing. What are you seeing are the biggest catalysts coming up for copper?

Sam Berridge: I think we've probably just started one of those catalysts now with the rate cuts recently in the US. The price has done reasonably well to bridge that gap between euphoric demand conditions post-COVID, and then weather that period of much higher rates from central banks as they try and stamp demand down as a means of combating inflation. But now we're getting through to the end of that, and lower rates will, in time, result in better demand, not just in Europe and the US, but throughout the emerging markets as well. 

Once that starts to happen, copper demand will pick up and we will run into shortages. As Dave pointed out, copper is a much bigger market than cobalt and lithium. The supply response will take much, much longer. So it won't be an 18-month or two-year thematic. It'll go for much longer than that.

Local vs global plays for copper exposure

Matt Michael: The thing that everyone always says is it's hard to find pure-play copper exposures on the ASX. Do you have to really broaden yourself out to other markets to get pure-play copper, or how do you sort of play it? Dave?

David Franklyn: It is a good point. There's a small number of copper producers and a smaller number that you really want to own. I think the benefit of having copper prices coming off a bit is you get an opportunity to buy some of them at a good price. So we're seeing that. We do go offshore sometimes. And while we try and stay pure-play, I think there are alternatives where you can go into an Evolution (ASX: EVN) or perhaps even a BHP (ASX: BHP), which is one of the largest copper producers globally.

Matt Michael: Sammy, are you firing up the Interactive Brokers account to get the overseas-listed copper players, mate?

Sam Berridge: We certainly do from time to time, particularly when you get quite bullish on the metal and you want to expand that portfolio allocation to copper beyond 10-15%. It's difficult to do that just on the ASX. So having that international button to push is certainly helpful.

Sandfire Resources (ASX: SFR)

Matt Michael: Very good. Right. Let's get into the stocks. First one, you'd say one of pure copper plays on the ASX, Sandfire Resources. Originally started with the great DeGrussa project, which I had the pleasure of working at, but since that unfortunately ran out of copper, they've got the MATSA project and the Motheo project in Spain and Botswana, and potentially the Black Butte in Montana, which has been around a while. So, how are we looking? Dave, we'll start with you, mate. Sandfire Resources, buy, hold, or sell?

David Franklyn (BUY): So we've got a buy on Sandfire. I think management's done a really good job in commissioning Motheo in Botswana and stabilising MATSA. I think what we're going to see now is that moving into a strong cash-generating phase, we are expecting debt to reduce by about $250 million over the next year, which I think addresses one of the major issues there. Copper production will go from about 98,000 tonnes to 110,000 tonnes and the EBITDA multiples just over four times for next year. So we think it's good value at a low point in the cycle.

Matt Michael: Sammy, what do you reckon, mate? They're having to work a bit harder for it these days. They're not getting 5% copper out of the ground like they did in the DeGrussa days. Sandfire Resources, buy, hold, or sell?

Sam Berridge (SELL): I've got a sell on this one, just on relative valuation, but I'm also a little bit worried about the power prices in Spain from 2027. That is a little while away, but when they bought that asset, they got into a bit of strife there with those big price spikes and the resulting charges from the smelters, along with operations from the higher power prices. And if Spain starts shutting down its nuclear industry, which it said it's going to do from 2027, I don't see how they avoid walking the same path that Germany does. So it's a little bit of a tangent, but it's just something in the back of my mind that I'm a bit weary about.

Metals Acquisition (ASX: MAC)

Matt Michael: Next one, Metals Acquisition Limited, previously known as Mac the Spac. Brought into Australia to acquire the CSA mine from Glencore out in Cobar, one of the highest grade underground copper mines around the world, but it is 1800-plus metres deep. Very historical, but there's some good copper in there. MAC, buy, hold or sell? Dave?

David Franklyn (BUY): We've got a buy on MAC. I think management's done a really good job since they bought the asset. They've increased resources and reserves, they've reduced costs, and now they're cranking up production. Should go from around 40,000 tonnes to 50,000 tonnes. Costs will come down. Free cash flow will start to improve. So, we've got it as a buy.

Matt Michael: Sammy? Metals Acquisition out in the sunny Cobar, mate. Buy, hold, or sell

Matt Michael: Next one. Now this is not a pure-play, but it does have a decent amount of copper exposure now. Notoriously known as a gold stock, Evolution Mining, but they were getting the copper credit out of Ernest Henry, but we've recently seen them acquire Northparkes, which is really lifting their copper exposure. So Evolution Mining. Dave, buy, hold, or sell?

David Franklyn (SELL): We've got a sell on Evolution as a copper exposure, and that's because it's a gold stock with a bit of copper. So, I think if copper moves and gold goes down, it's going to go down. I don't think you buy Evolution for copper exposure. Production guidance is going to produce something like 740,000 ounces gold and 75,000 tonnes of copper. So there's a mix. I think in general, it's a well-managed business, with good gold exposure, debts falling, free cash flows ramping up. Nice to have a bit of copper there, but it's a gold stock.

Matt Michael: Sammy, Evolution, the gold and a bit of copper play. Buy, hold, sell?

Sam Berridge (HOLD): I am going to sit on the fence with a hold for this one. It is amusing we're talking about this as a copper stock, despite Jake Klein continuing to pitch it as a gold company. He adjusts his all-in-sustaining costs to suit his purpose there. But it's a bit middle of the road, I think, in terms of valuation for us. So yeah, we'll leave it on a hold.

Matt Michael: Right-o. What are you bringing to the table now for the copper plays outside of the three we've discussed? Dave, what have you got?

David Franklyn (BUY): We're heading back to Canada. So our buy is Teck Resources. Over the last year, it's sold off its coal assets. It's now got net cash of about $2.9 billion, but the story really is the diversified nature of its copper portfolio. It spreads across US, Canada, Chile, Peru, Mexico. Production's going from around 300,000 tonnes in 2022 to about 600,000 tonnes by 2025, with the QB mine in Chile a big part of that ramp-up. So we think it's a good solid exposure to copper long term.

Matt Michael: God, these Livewire listeners won't know what hit them with all these international stocks coming their way. Sammy, what have you got for us, mate? What are you buying?

Sam Berridge (BUY): Again, a Canadian asset, but ASX listed, and that's Firefly Metals. Fantastic acquisition by Steve Parsons and the team there. The drill results continue to grow that resource base into what looks like a 50,000 tonne per annum copper producer. So that's pretty much what Metals Acquisition Corp is doing. And they're capped at about a billion dollars, whereas Firefly is just under half that. They've also got the Pickle Crow Gold Project, which they're looking to divest, which should mean no more dilution or capital raisings if they can get that way at a reasonable price. And then just lastly, they put out some geophysical results just recently, and it looks from that that there are other lenses around, which quite possibly add material upside to that mine life. So you're not paying for that at the moment, which is what I like, but that free option on a substantially larger resource and therefore operation in time looks good.

Matt Michael: Very good, gentlemen. Well, that's all we've got time for in this copper spectacular today. Thanks very much again to Livewire for having me on the show. And make sure you subscribe to all Livewire's content on YouTube, all the podcast platforms, and it'll keep feeding into your phone every single week. Take it easy, everyone. Cheers, lads.