The prospects of the Zacks
Mining - Non Ferrous industry look bleak as weak demand in China has been weighing on metal prices. Industry players are also grappling with inflated costs, labor shortages and supply-chain issues. However, the demand for non-ferrous metals is expected to be strong, mainly driven by the energy-transition trend, which will buoy the industry. Against this backdrop, we suggest keeping a close eye on companies like Freeport-McMoRan Inc. ( FCX Quick Quote FCX - Free Report) , Ero Copper ( ERO Quick Quote ERO - Free Report) , Energy Fuels ( UUUU Quick Quote UUUU - Free Report) and Coeur Mining ( CDE Quick Quote CDE - Free Report) . These companies are poised to gain from their endeavors to build reserves and control costs, while investing in technology and improving production 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 various industries, including aerospace, automotive, packaging, construction, machinery, electronics, transportation, jewelry, chemical and nuclear energy. Mining is a long, complex and capital-intensive process. Significant exploration and development to evaluate the size of the deposit, followed by the assessment of ways to extract and process ore efficiently, safely and responsibly, precede the actual mining operations. The miners continuously seek opportunities to grow their reserves and resources through targeted near-mine exploration and business development. They strive to upgrade and improve the quality of their existing assets internally and through acquisitions.
What's Shaping the Future of the Mining-Non Ferrous Industry?
: Copper prices started this year on a strong note, fueled by investor expectations of a surge in demand after the reopening of the China economy. However, data from China continue to signal contraction in the country’s construction and manufacturing sector. This suggests that the much-awaited recovery from extended COVID-led lockdowns has not materialized and fueled concerns that economic support from the government will not be enough to add significant traction to industrial activity. This has weighed on copper prices. After gaining in the earlier part of the year, aided by the ongoing uncertainty around global economic growth, gold and silver prices have also recently lost steam, dragged by a strong dollar and elevated bond yields. Nevertheless, metal prices will eventually pick up, aided by the demand-supply imbalance. Overall, industry players are dealing with depleting resources, declining supply in old mines and a lack of new mines. Development projects are inherently risky and capital-intensive. While demand has been strong, there will be an eventual deficit in metal supply, leading to a situation that will bolster metal prices. This, in turn, will favor the industry in the long haul. Current Weakness in Metal Prices is Concerning : The industry has been facing a shortage of skilled workforce to date, which has hiked wages. Labor-related disputes can be damaging to production and revenues. Industry players are grappling with escalating production costs, including electricity, water and materials, as well as higher freight expenses and supply-chain issues. Since the industry cannot control the prices of its products, it focuses on improving sales volume, increasing operating cash flow and lowering unit net cash costs. Industry participants are opting for alternate energy sources to minimize fuel-price volatility and secure supply. Miners are now committed to cost-reduction strategies and digital innovation to drive operating efficiencies. Labor Shortage, High Costs Remain Worrisome : Demand for non-ferrous metals will remain high in the future, given their wide use in primary sectors, including transportation, electricity, construction, telecommunication, energy, information technology and materials. The demand for electric vehicles and renewable energy is expected to be a significant growth driver for metals like copper and nickel in the years to come. The plan to overhaul and upgrade the nation’s infrastructure and promote green policies per the U.S. Infrastructure Investment and Jobs Act will also require a huge amount of non-ferrous metals. Strong Demand to Support the Industry Zacks Industry Rank Indicates Bleak Prospects
The group’s Zacks
Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates dull prospects for the near term. The Zacks Mining - Non Ferrous industry, a 10-stock group within the broader Zacks Basic Materials Sector, currently carries a Zacks Industry Rank #184, which places it in the bottom 26% of 250 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. Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock-market performance and its valuation picture. Industry Versus S&P 500 & Sector
The Zacks Mining- Non Ferrous Industry has outperformed its sector and the Zacks S&P 500 composite over the past 12 months. The stocks in this industry have collectively surged 79.5% in the past year compared with the Zacks Basic Materials sector’s rise of 10.7%. The S&P 500 has grown 9.5% in the said time frame.
One-Year Price Performance
Industry's Ciurrent Valuation
Based on the forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Mining- Non Ferrous stocks, we see that the industry is currently trading at 5.58X compared with the S&P 500’s 11.39X. The Basic Materials sector’s trailing 12-month EV/EBITDA is at 6.66X. 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 traded as high as 8.88X and as low as 3.41X, with the median at 6.38X.
4 Mining - Non Ferrous Stocks to Keep an Eye on
Energy Fuels: The company recently stated that it completed the sale of 80,000 pounds of uranium to a major U.S. nuclear utility in the second quarter of 2023 — its first delivery under its new portfolio of long-term uranium sales agreements. The sale proceeds of $4.34 million resulted in a gross margin of 46% per pound of uranium. It plans to sell an additional 180,000 pounds of uranium this year, per its supply agreements with U.S. nuclear utilities, for $54-$58 per pound. This is expected to lead to a gross margin of 46-50%. The company is making significant progress in preparing four conventional uranium and uranium/vanadium mines to resume ore production. The recent sale of the lower-priority Alta Mesa ISR Project will provide UUUU with significant additional cash and working capital, enabling it to ramp up its US industry-leading uranium and rare earth element (“REE”) production. To this end, it has made modifications and enhancements at the White Mesa Mill, which will produce 800-1,000 MT per year of neodymium-praseodymium ("NdPr") oxide by late 2023 or early 2024. This is expected to position Energy Fuels as one of the world's leading producers of NdPr outside China. This Lakewood, CO-based company, together with its subsidiaries, engages in the extraction, recovery, exploration, processing, permitting, evaluation, and sale of uranium, vanadium and REE. The Zacks Consensus Estimate for the company’s fiscal 2023 earnings is pegged at 59 cents, suggesting a turnaround from the loss of 38 cents reported in fiscal 2022. The estimate has moved up 18% over the past 90 days. The company currently carries a Zacks Rank #2 (Buy). Price: UUUU Freeport-McMoRan: FCX’s exploration activities near existing mines, which are focused on expanding reserves, will drive growth. It is expected to benefit from the ongoing large-scale concentrator expansion project at Cerro Verde that will likely result in incremental annual productions of 600 million pounds of copper and 15 million pounds of molybdenum. Cerro Verde's expanded operations will also offer cost efficiencies, and large-scale and long-lived reserves. It is evaluating a large expansion at El Abra to process additional sulfide material. The expansion at Morenci increased milling rates significantly. The company is increasing its operating rates at Lone Star to achieve production of 300 million pounds of copper from oxide ores in 2023 compared with the initial design capacity of 200 million pounds. The oxide project at Lone Star advances the opportunity for the development of the un underlying, large-scale sulfide resources. The focus on cost management and reduction of debt levels is commendable. The company’s shares have gained 41% in a year. Based in Phoenix, AZ, Freeport-McMoRan is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; and smelting and refining copper concentrates. FCX has a trailing four-quarter earnings surprise of 10.5%, on average. The company currently carries a Zacks Rank #3 (Hold). Price: FCX Ero Copper: The company produced 12,004 tons of copper in the second quarter of 2023, up 29% on a sequential basis. The company has been progressing on its strategic initiatives, which will drive significant near-term growth. Among these, construction of the Tucumã Project is running per the schedule and is 45% completed so far. At the Caraíba Operations, the pre-sink phase of development at the new external shaft was completed in the second quarter, with the headgear and winder installation on track to commence main sinking before the end of this year. At the Xavantina Operations, horizontal development into the new Matinha vein was completed in the second quarter, with the first production expected in the remaining part of the year. Backed by these developments, the company’s shares have surged 106% over the past year. ERO is on track to double copper production to more than 100,000 tons in 2025 and expects to achieve higher sustained gold production levels of 55,000-60,000 ounces per year beginning in 2024. The Zacks Consensus Estimate for the Vancouver, Canada-based company’s fiscal 2023 earnings indicates year-over-year growth of 17.6%. SCCO has a trailing four-quarter earnings surprise of 7%, on average. The company engages in the exploration, development and production of mining projects in Brazil. It produces and sells copper concentrate from the Caraíba operations, located within the Curaçá Valley, northeastern Bahia state, and gold and silver by-products. ERO currently carries a Zacks Rank #3. Price: ERO Coeur Mining: The company reported a total production of 69,039 ounces of gold and 2.5 million ounces of silver in the first quarter of 2023. The numbers were higher than expected, aided by solid performances at Palmarejo, Rochester and Wharf. Production levels are expected to increase in the second half of the year due to mine plan sequencing, as well as the anticipated ramp-up and commissioning of the Rochester expansion. CDE’s solid balance sheet positions it well to support the capital requirements. Exploration success continues at Silvertip and Kensington, which bodes well for long-term growth. The company recently announced that grades at Silvertip continued to be among the world’s highest compared with similar carbonate replacement deposits. ecent drilling indicates new mineralized zones identified in Upper Kensington, suggesting promising potential for mine life increases. 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. The Zacks Consensus Estimate for the company’s fiscal 2023 earnings is pegged at a loss of 13 cents. However, the estimate suggests an improvement from the loss of 32 cents reported in fiscal 2022. The estimate has narrowed from a loss of 19 cents per share stated 90 days ago. The company currently carries a Zacks Rank #3. Price: CDE