Sandfire, 29 Metals, Aeris Resources, brokers say only one is their “go to” name in ASX Copper

Many have speculated that copper could be the next lithium in terms of presenting investors with a commodity which suddenly faces a looming supply shortage. In the short term, production has been slow to ramp up in the wake of the COVID-19 pandemic, and in the longer term, many analysts predict there simply isn’t enough current and planned production in the pipeline to keep up with the growing demand from green energy industries.

The above certainly was one of the most popular narratives for Aussie resources investors in 2023. So far, however, all the speculation and excitement surrounding “the next big copper bull run” hasn’t materialised. Instead, copper stockpiles, whilst low by historical standards, remain adequate to meet what has turned out to be lower than expected global demand, sparked by higher interest rates and a continued slow down in the Chinese economy – particularly its ailing property sector.

Still, if the next big copper bull run should start today, you’ll want to be prepared! So, I’ve compiled for you a shortlist of ASX copper stock candidates, as well as the latest broker commentary on them. We’ll take mega-caps BHP and Rio Tinto as given and focus instead on the mid-cap and smaller-cap end of town. Let’s dive in!

Sandfire Resources (ASX: SFR)

Sandfire Resources produces copper at its two copper mines, MATSA in Spain and the flagship Motheo Copper Mine in Botswana. After BHP’s takeover of OZ Minerals in 2023, Sandfire is the largest remaining pure play copper exposure on the ASX. This has led many to speculate it too could become the target of a major global mining company.

On Tuesday, Sandfire released its Sandfire December 2023 Quarterly Report. This is what the brokers had to say about it:

Citi

• Production was in-line with broker’s estimate, but costs were better than expected

• Noted SFR has “reliably been hitting targets helping to cement it as the ‘go to’ name in ASX copper”

• Broker is “near-term” cautious on copper, though, and sees “limited catalysts” for major positive rerating of SFR

• Retains NEUTRAL rating; Price target is unchanged at $6.90

Goldman Sachs

• Quarterly update was “broadly in-line with expectations”, but copper production below and zinc production above broker’s estimates, EBITDA missed by US$15 million to $135 million due to timing issues related to Motheo shipment delay

• Sees ramp up of Motheo mine as important, ahead of schedule

• Broker expects Motheo production could beat guidance by as much as 10%, costs could beat by as much as 11%

• Increases EPS estimates by 15% for FY25 and by 20% for FY26

• SFR is “fairly valued” trading roughly at net asset value (NAV) and in-line with BHP, RIO and other global copper companies

• Retains NEUTRAL rating; Price target increased to $7.20 from $6.70

Jarden

• SFR’s quarterly is “very strong”, copper production beat broker’s estimate by 5%, earnings before interest, tax, depreciation and amortisation (EBITDA) beat by 10%

• “Cost discipline” a particularly pleasing feature

• Motheo ramp up continues “strongly”, good timing given “tight concentrate market”, and Motheo production uncontracted

• Broker increases FY24 EBITDA estimate by 4% due to higher Motheo production

• SFR is “top sector preference”

• Retains OVERWEIGHT rating; Price target increased to $6.50 from $6.40

Macquarie

• Broker notes a “solid” cost performance at Motheo in an overall “solid” quarterly result, even though copper production was 4% below broker’s estimate

• The ramp up of Motheo appears to be “going well”, and this means that the second half of FY24 “will be strong”, increasing probability of an earnings beat versus company’s FY24 guidance

• Broker cuts FY24 EPS estimate by 8%

• Retains OUTPERFORM rating; Price target unchanged at $7.90

Morgan Stanley

• Copper production was 3% below broker’s estimate and 4% below consensus, but costs were 5% below broker's estimate

• Updated hedge position and lower copper sales in the second quarter trigger a cut in FY24 earnings per share (EPS) estimate to a $0.04 per share loss from a $0.01 per share profit previously, but FY25 estimate gets fractional increase, FY26 estimate gets 5% increase

• Retains EQUAL-WEIGHT rating; Price target increased to $6.30 from $6.00

UBS

• Quarterly copper and zine production approximately 8% below broker’s estimate due to copper recoveries as MATSA

• Sees company’s guidance as “largely on track” and “on budget” with “good cost control”

• Broker notes SFR “Remains our best (only) copper option”

• Retains BUY rating; Price target unchanged at $7.60

Consensus View*

Just looking at the brokers we’ve sampled here, and this is not an exhaustive list of brokers which cover Sandfire Resources, the consensus rating is BUY/OUTPERFORM/OVERWEIGHT and the average price target is $7.07 (2.8% below the last price at the time of writing).

Whilst Sandfire’s average price target to current price ratio isn’t particularly exciting, there’s clearly plenty of positivity among the brokers sampled for the company, with at least one broker noting it is the only credible copper pure play option remaining on the ASX. Therefore, by default copper bulls, it’s one you’ll have to keep an eye on!

29 Metals (ASX: 29M)

29 Metals owns two producing copper mines in Western Australia, Capricorn Copper and Golden Grove. Together, the mines contain a Mineral Resource estimate of 2.24Mt copper, 2.47Mt zinc, 1.32Moz gold, 78Moz silver, 153kt lead and 22kt cobalt. According to 29 Metals, both ore bodies remain open and resources could be increased by further exploration and development.

On Tuesday, Sandfire released its Quarterly Report for December 2023 Quarter. This is what the brokers had to say about it:

Citi

• Broker estimates cash flow for both 29M’s operations “still in the red” and based upon current base estimate for copper price of US$8,000/t isn’t going to “get better” for Golden Grove in FY24

• FY24 zinc production guidance of 54kt-61kt was below the broker’s circa 68kt estimate, while costs are 11% above broker’s estimate

• Broker cuts FY24 EBITDA estimate by $87 million, and FY25 EBITDA estimate by $97 million

• Retains NEUTRAL rating; Price target is cut to $0.50 from $0.73

Macquarie

• Quarterly copper production was 20 below the broker’s estimate

• 2024 guidance update for 18kt-22kt was below the broker's estimate of 22.9kt

• Costs at Golden grove were 28% below the broker's estimate, while costs at Capricorn were 36% below the broker’s estimate

• Broker 2024 EPS estimate by 219%, while 2025-2027 estimates increase by 6%-82% due to “uplifts in mining grades at Golden Grove”

• Retains OUTPERFORM rating; Price target is cut to $0.70 from $0.80

Morgan Stanley

• Quarterly copper production missed broker’s estimate by 7%, while zine production missed broker's estimate by 23%

• Worst than expected costs resulted in a “continued cash draw” and 2024 will be a bigger cash negative period than originally expected

• Broker expects a “strong recovery” in zinc production in 2024

• Retains OVERWEIGHT rating; Price target unchanged at $0.70

Consensus View*

Just looking at the brokers we’ve sampled here, and this is not an exhaustive list of brokers which cover 29 Metals, the consensus rating is BUY/OUTPERFORM/OVERWEIGHT and the average price target is $0.743 (106% above the last price at the time of writing).

Clearly the brokers see some operational issues here, and they note that 29 Metals is burning cash. Still, they clearly see enough promise in the company to run with generally better than neutral ratings, and a price target which implies substantial upside from the current price.

Aeris Resources (ASX: AIS)

Aeris Resources has two producing copper mines, Tritton in New South Wales and the North Queensland mine, and the Cracow gold mine in Queensland. It has two development projects, Jaguar in Western Australia which was a producing mine but is now on care and maintenance, and Stockman in Victoria at which it is undertaking a definitive feasibility study.

On Tuesday, Sandfire released its Quarterly Activities Report – December 2023. This is what the brokers had to say about it:

Macquarie

• Broker describes quarterly performance as “mixed” as copper production was 14% below expected while gold production was “largely in-line”

• Sees as a positive AIS maintained FY24 copper production guidance of 28ky-35kt compared to broker’s estimate of 31kt, and operating costs $381-$459 million compared to broker’s estimate of $436 million

• Exploration activities at Stockman project “presents upside to our valuation”

• Broker cuts FY24 EPS estimate by 2%, while FY25-FY28 estimates are cut by 1%-10%

• Retains NEUTRAL rating; Price target is cut to $0.13 from $0.14

Consensus View*

I won’t offer a consensus here because one broker is hardly a quorum! However, I do note that Macquarie’s price target is around 23% below Aeris’ last price of $0.105 at the time of writing.

*Consensus View rating is calculated by assigning a value of 1 to any rating better than neutral, 0 to a neutral rating, and -1 to any rating worse than neutral. The average of the numerical ratings is calculated and a value of 0.5 or greater is considered a consensus BUY/OUTPERFORM/OVERWEIGHT rating, a value of less than -0.5 is considered a consensus SELL/UNDERPERFORM/UNDER-WEIGHT rating, and a value in between is considered a consensus NEUTRAL/HOLD/EQUAL-WEIGHT rating.

This article first appeared on Market Index on January 31 2024.