Precious metal prices have been on the rise in 2020, and one analyst is bullish on two big-name copper producers.
The Analyst: Bank of America analyst Lawson Winder reinstated coverage of Teck Resources Ltd (NYSE: TECK) with a Buy rating and $36 price target. He also reinstated coverage of Freeport-McMoRan Inc (NYSE: FCX) with a Buy rating and $39 price target.
The Thesis: Winder said Teck is building a massive copper mine in Chile that will double the company’s copper production to 583,000 tons in 2025. At the same time, the copper project will reduce the company’s exposure to steelmaking coal to just 37% of 2025 EBITDA.
Winder said the copper market has a mixed outlook in the next couple of years, but he is bullish on low-cost production growth and says copper is a solid long-term investment beyond 2025.
“We believe that decarbonization means increased metal intensity. Often this means electrification, requiring ever more copper,” Winder wrote in a note.
He said Teck offers investors a rare combination of sizable production growth, rising free cash flow and impressive capital returns.
For Freeport McMoRan, Winder said the company has made it through a risky period and is a compelling value given its liquidity, its diverse asset base and its strong track record of capital returns. Management also successfully navigated a tricky ownership change and transition from open pit to block cave at its Grasberg mine.
He projects copper production growth could increase Freeport’s copper output by 34% through 2028.
Benzinga’s Take: Winder’s copper stock initiations come just a week after Bank of America reduced its price forecasts for gold, silver and copper and cut its targets for 18 precious metal stocks. Obviously it’s not good news for precious metal investors to see target prices falling, but BofA analysts still see plenty of opportunity for robust free cash flow and sizable returns for selective precious metal investors.
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