Mining stock upgrades and downgrades amid gold, copper volatility

Thu 06 Jun 24, 2:00pm (AEST)
mining truck

Key Points

  • Copper stocks are up 29%, beating gold stocks despite the precious metal's 15% price rise YTD
  • Analysts forecast a decline in both copper and gold prices but see more appeal in gold stocks
  • Caution is advised for FY25 due to inflationary risks, higher capex especially among large-cap names

Shrugging off yesterday’s 1% drop in the gold price, which saw it near a one-month low of US$2,326 an ounce, Ord Minnett has just dropped a note on its revised coverage list within the commodities space.

Short-term movements aside (gold futures have since rallied again), the research team describe an “improving commodity backdrop with both gold and copper prices increasing 19% and 15% YTD.”

But Ord Minnett analysts emphasise these moves aren’t reflected proportionately in equity market investor sentiment, with copper-exposed stocks beating gold stocks by +29% during the period.

“This speaks to investor appetite for copper, with the market factoring in higher prices…whereas gold equities are discounting to around A$2,885/oz,” say the Ord Minnett analysts. They’re forecasting copper and gold prices to fall -8% and -19% versus current spot prices, respectively.

For that reason, they see greater appeal in the gold names they cover.

“As we approach guidance disclosures, FY25 cost/CAPEX expectations appear too optimistic for our larger cap coverage. This presents downside risks given inflationary conditions (FY23/24) and what happened last year (13% decline after FY23 guidance).”

What’s driving commodity moves?

In copper, Ord Minnett emphasises the role of “supply binds” including disruptions in South American mines, and production cuts at Chinese smelters in the 19% YTD price rise. This has coincided with relatively robust demand, as indicated by China’s latest Composite PMI figure of approx. 54 remaining flat month-on-month.

In gold, Ord Minnett says the 15% price improvement year-to-date is “seemingly counter-intuitive to traditional indicators such as USD, treasury yields and the volatility index (VIX).”

“But the motivation is clear, with buyers looking forward and taking a view on US Dollar strength and geopolitical risk. Both of which are unlikely to do an about turn,” say the Ord Minnett analysts.

“We see gold prices remaining consistent through the remainder of 2024 at US$2,270/oz.”

Highlighting the disparity between the commodity moves and equity prices, they note that copper equities have outperformed the underlying metal’s price movement by 21%. On the other hand, gold equities have fallen while the gold price has risen 8%.

“This shows that investors are more prepared to input higher copper perpetuity, whilst the market doesn’t believe in this current gold rally,” Ord Minnett says.

Caution urged as FY25 approaches

“We are more cautious heading into FY25 given persistent inflationary conditions. Market expectations appear to have crept up with commodity improvements and we think costs, CAPEX outlooks will be higher than consensus for the larger cap miners,” say Ord Minnett analysts, pointing to Northern Star (ASX: NST), Evolution Mining (ASX: EVN) and Sandfire Resources (ASX: SFR) as examples.

“We think this presents downside risk for the larger cap names…but we’re less concerned about smaller cap peers given their relative underperformance.”

Ord Minnett’s top picks

Red 5 (ASX: RED)

  • Rating: BUY

  • Risk: Higher

A new addition to Ord Minnett’s coverage, RED has replaced Ramelius Resources after recent M&A news. Ord Minnett is also the only major broker covering the stock.

Screenshot 2024-06-06 at 12.35.03 PM
RED 5 12-month share price (Source: Market Index)

Genesis Minerals (ASX: GMD)

  • Rating: ACCUMULATE, upgraded from Hold

  • Risk: Higher

All the major brokers surveyed by FNArena are positive on Genesis Minerals with UBS, Macquarie, and Shaw and Partners all giving the stock a BUY or OUTPERFORM rating.

Screenshot 2024-06-06 at 12.59.09 PM
Genesis Minerals 12-month share price (Source: Market Index)

Sandfire Resources (ASX: SFR)

  • Rating: HOLD, downgraded from Accumulate

  • Risk: Medium

Morgans, Morgan Stanley, and UBS all agree with Ords' call to hold the stock while Macquarie has the stock rated as OUTPERFORM. On the other hand, Citi has a SELL rating on this company and its price target implies a 10% fall from current levels.

Screenshot 2024-06-06 at 12.59.59 PM
Sandfire 12-month share price (Source: Market Index)

Northern Star Resources (ASX: NST)

  • Rating: HOLD, downgraded from Accumulate

  • Risk: Medium

Citi and Morgan Stanley agree with Ords' rating of HOLD and EQUAL WEIGHT respectively. In contrast, UBS and Macquarie both have the stock as a solid buy rating. UBS' price target is 29% higher than its current share price.

Screenshot 2024-06-06 at 1.01.22 PM
Northern Star Resources 12-month share price (Source: Market Index)


Written By

Glenn Freeman

Content Editor

Glenn is a Content Editor at Livewire Markets and Market Index. Glenn has almost 20 years’ experience in financial services writing and editing. Glenn’s journalistic experience also spans energy and automotive, in both Australia and abroad – including the Middle East – where he edited an oil and gas publication in the United Arab Emirates.

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