Macquarie's five preferred base metal picks: IGO, Mincor and more

Base metal prices were already recovering ahead of Monday's news about China's sweeping rescue package to bail out its beleaguered real estate sector.

"Nickel, copper, lead, and zinc prices were 9.6%, 6.8%, 6.7%, and 5.5% higher last week buoyed by the loosening of China’s lockdown restriction," Macquarie analysts said in a note on Tuesday.

The investment bank said its preferred Australian base metal picks include:

• Sandfire Resources (ASX: SFR) for copper exposure

• IGO (ASX: IGO) for its dual lithium/nickel exposure

• Mincor (ASX: MCR) for nickel

• Centaurus Metals (ASX: CTM) for development

• Chalice Mining (ASX: CHN) was also viewed as a 'key sector pick, with drilling results a key catalyst'

Preferred base metal play summary:

Source: Macquarie Research

Leveraged to spot prices

Macquarie says that Nickel Mines (ASX: NIC) offers the greatest leverage to nickel prices in FY23, with a 10% increase in LME nickel prices able to drive a 69% increase in the company's nickel project NPVs.

"Copper-focused producers have similar NPV sensitivities as nickel-focused producers but broadly higher earnings sensitivity in FY24," said Macquarie.

Sandfire is viewed as the most sensitive to copper prices, with analysts calculating that a 10% increase in copper price translates to more than 250% earnings upside for FY23 estimated earnings.

The current spot prices for copper and nickel sit above Macquarie's price forecasts. The analysts believe Sandfire has the highest increase in earnings under the current spot price scenario in FY23. While Jervois Global (ASX: JRV) was flagged for a potential -12% decrease in FY24 earnings under a spot price scenario.

Valuations for Australian-based producers could also be materially affected by a weaker Australian dollar, with valuation upside of 10-30% for a 10% fall for the AUD/USD, according to Macquarie.

Spot copper prices are slightly above long-term forecasts (Source: Macquarie Research)