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4 Non Ferrous Metal Mining Stocks to Watch Amid COVID-19 Crisis

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The Zacks Mining - Non Ferrous industry bore the brunt of weak demand in the earlier part of the year as the COVID-19 outbreak spread. Miners had to shut operations as per government mandates. However, the recent pickup in industrial activity and supply concerns has led to a recovery in metal prices. However this might be short-lived, considering that the pandemic shows no sign of abating.

In this scenario, miners like Southern Copper Corporation (SCCO - Free Report) , Freeport-McMoRan Inc. (FCX - Free Report) Kaz Minerals PLC (KZMYY - Free Report) and Coeur Mining, Inc. (CDE - Free Report) are controlling costs and investing in technology to increase efficiency.

About the Industry

The Zacks Mining - Non Ferrous industry comprises companies that produce non-ferrous metals, including copper, gold, silver, cobalt, molybdenum, zinc, aluminum and uranium. These metals are utilized by a wide array of industries that include aerospace, automotive, packaging, construction, industrial machinery, electronics, transportation, jewelry, chemical, and nuclear energy.

What’s Shaping the Future of Mining-Non Ferrous industry

Looming Uncertainty Regarding COVID-19 Pandemic: The coronavirus pandemic impacted non-ferrous metal prices this year barring gold, which gained on the back of its safe-haven demand. Also, earlier this year, miners had to curtail or stop production to conform with actions taken by various governments to stem the spread of COVID-19. Slowdown in industrial activity severely impacted demand for industrial metals like copper and silver. Per the Institute for Supply Management, the U.S Manufacturing Purchasing Managers’ Index had plunged to a low of 41.5% in April 2020. However, the index has recovered since June and registered 57.5% in November. Notably, the PMI has maintained a reading above 50 (which denotes expansion) for six straight months. The IHS Markit Eurozone Manufacturing, PMI has trended above five months as well. Meanwhile, silver and copper prices have regained ground on the pickup in industrial activity. However, renewed lockdowns might put a brake on the recovery in industrial activity, which in turn might impact metal prices.

Cost Control & Innovation to Increase Efficiency: Mining companies are major consumers of energy with around 50% of their production costs closely linked to energy prices. Thus, lower oil prices this year will aid margins. Meanwhile, the industry has been facing a shortage of skilled workforce that has led to a spike in wages. Moreover, labor-related disputes can be damaging to production and revenues. Since the industry cannot control the prices of its products, it focuses on improving sales volume, operating cash flow and lowering unit net cash costs. The industry participants are also opting for alternate energy sources in order to minimize fuel-price volatility and secure supply. Miners are now committed to cost-reduction strategies and digital innovation to drive operating efficiencies.
 
Impending Demand and Supply Imbalance: The industry players are currently dealing with depleting resources, declining supply in old mines and lack of new mines. Development projects are inherently risky and capital intensive. Demand for non-ferrous metals will remain high in the future given their wide usage in primary sectors including transportation, electricity, construction, telecommunication, energy, information technology and materials. Continued demand from top consumer China, prospects for a U.S stimulus package and promising developments toward a coronavirus vaccine bode well for commodity prices. While demand remains strong, there will be an eventual deficit in metal supply creating a situation that will bolster metal prices, which will favor the industry in the long haul.

Zacks Industry Rank Indicates Dismal Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy prospects in the near term. The Zacks Mining - Non Ferrous industry, which is a nine stock group within the broader Zacks Basic Materials Sector, currently carries a Zacks Industry Rank #212, which places it at the bottom 17% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since the beginning of this year, the industry’s earnings estimate for the current year has gone down 8%.

Our proprietary Heat Map shows that the industry’s rank has remained in the bottom half over the past four weeks.



Despite the bleak near-term prospects, we will present a few Mining – Non Ferrous stocks that one can retain given their growth prospects. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Versus Broader Market

The Zacks Mining- Non Ferrous Industry has outperformed the Zacks S&P 500 composite and its own sector over the past year. The stocks in this industry have collectively gained 66% in the past year compared with the S&P 500’s and its sector’s rally of 18.3% and 20.8%, respectively.

One-Year Price Performance

Industry’s Current Valuation

On the basis of forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Mining- Non Ferrous stocks, we see that the industry is currently trading at 7.80X compared with the S&P 500’s 15.16X. The Basic Materials sector’s forward 12-month EV/EBITDA is at 5.77X. This is shown in the charts below.

Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
 


 

Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)




Over the last five years, the industry has traded as high as 8.88X and as low as 4.80X, with the median being at 6.38X.

4 Mining-Non Ferrous Stocks to Keep an Eye On

Southern Copper: This company based in Phoenix, AZ engages in mining, exploring, smelting, and refining copper and other minerals.

The company has the largest copper reserves in the industry and operates high-quality, world-class assets. Its constant focus on increasing low-cost production is commendable. The company will gain on its efforts to grow in Peru given that the country is currently the second largest producer of copper globally and holds 13% of the world’s copper reserves. It is worth mentioning that Peru’s national output has soared 93% over the 2009-2019 time frame and is expected grow to 245000 tons in 2022. Notably, Southern Copper’s total investment program in Peru runs to $7.9 billion. The recent rally in copper and silver prices bode well for the company.

The Zacks Consensus Estimate for the company’s current-year earnings has moved up 25% in 90 days’ time. It has a long-term estimated earnings growth rate of 13.2%. The company’s shares have gained 52.8% in the past six months. It currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Price: SCCO




Freeport-McMoRan: This Phoenix, AZ-based company is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; and smelting and refining of copper concentrates.

Freeport is conducting exploration activities near existing mines with a focus on opportunities to expand reserves. The company will benefit from the ongoing large-scale concentrator expansion project at Cerro Verde that will provide incremental annual production of around 600 million pounds of copper and 15 million pounds of molybdenum. The company recently completed the Lone Star copper leach project and is on track to produce around 200 million pounds of copper annually. The company's effective cost management and efforts to reduce debt levels appear encouraging. Higher copper prices will also aid results.

The Zacks Consensus Estimate for earnings for fiscal 2020 indicates year-over-year improvement of 2450%. The estimate has been revised upward by 70% over the past 90 days. The company has a trailing four-quarter earnings surprise of 87%, on average. Shares of the company, which carries a Zacks Rank #3, has soared 118.1% over the past six months.

Price: FCX
 




Kaz Minerals: This U.K.-based company and its subsidiaries engage in mining and processing copper and other metals (gold, silver, zinc) primarily in Kazakhstan and Kyrgyzstan.

The company is well positioned to grow on the back of its large scale, low cost open copper pit mines. Its constant focus on applying modern technology to develop deposits has helped build a portfolio of highly profitable mines with low operating costs. Thanks to the completion and ramp up of the Bozshakol and Aktogay projects, the company’s copper production witnessed a 40% CAGR during the 2015-19 period. The Aktogay expansion project carrying a total budget of $1.2 billion is expected to commence production in late 2021. It is expected to boost the company’s copper production by 80,000 tons from 2022-27 and 60,000 tons thereafter. The bankable feasibility study for the Baimskaya copper project is expected to be completed in the first half of 2021. Baimskaya is one of the world’s largest undeveloped copper resources with the potential to be a large scale, low cost open pit copper mine.

The Zacks Consensus Estimate for the company’s earnings for the current fiscal year has moved up 16% over the past 90 days. Its shares have appreciated 58.5% over the past six months. The stock carries a Zacks Rank #3.

Price: KZMYY




Coeur Mining: This Chicago, IL-based company explores, develops, and produces gold, silver, zinc, and lead properties with five operations in the United States, Mexico and Canada.

A key component of Coeur’s strategy is to create value through exploration. The company is currently executing its largest exploration program in its history. The main focus of the program is resource expansion and new discoveries, including prospective step-out drilling on certain targets designed to test known boundaries of existing mineralization. Approximately 20 drill rigs continue to operate across the company. In third-quarter 2020, the company achieved a major milestone by commencing construction on schedule on the POA 11 expansion project at Rochester. This expansion will allow the company to operate the mine at full production until 2033. Along with strong operational execution at several sites, the company’s efforts to lower debt and improving metal prices will contribute to results.

The Zacks Consensus Estimate for the company’s fiscal 2020 earnings indicates year-over-year growth of 256%. The estimates have moved up 300% over the past 90 days. The company carries a Zacks Rank #3. The company has a trailing four-quarter earnings surprise of 100.9%, on average. The company’s shares have gained 60.2% in the past six months.

Price: CDE




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