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3 Non Ferrous Metal Mining Stocks to Watch Amid Industry Woes
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The prospects of the Zacks Mining - Non Ferrous industry look bleak at the moment given apprehensions regarding slowing demand and economic activity due to the rapid spread of the Omicron variant. On top of this, the industry players are grappling with inflated input costs, labor shortages and supply chain issues.
In this scenario we suggest keeping an eye out for companies like Freeport-McMoRan Inc. (FCX - Free Report) , Southern Copper Corporation (SCCO - Free Report) and Energy Fuels Inc. (UUUU - Free Report) . These are poised to gain on the back of 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 a wide array of industries that include 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 assessment of ways to extract and process the ore efficiently, safely and responsibly precedes actual mining. The miners continually search for 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 Mining-Non Ferrous Industry
The Imminent Threat of Omicron Variant: When the coronavirus pandemic struck, it impacted non-ferrous metal prices last year barring gold, which gained on the safe-haven demand. Miners had to curtail or stop production to adhere to restrictions imposed by various governments to stem the spread of COVID-19. The slowdown in industrial activity severely impacted demand for industrial metals like copper and silver. Commodity prices have regained ground since, courtesy of improving industrial activity globally, the rollout of vaccines, optimism regarding a strong US economic growth and robust demand from China. However, the rising number of infections due to the Omicron variant and impending fears that it might hamper the ongoing economic recovery might hurt the industry again.
Cost Control & Innovation to Increase Efficiency: The industry has been facing a shortage of skilled workforce, which has led to a spike in wages. Labor-related disputes can be damaging to production and revenues. The industry players are grappling with escalating production costs including electricity, water and materials as well as supply chain issues. 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 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. The passage of the $1.2 trillion infrastructure bill in the House instills confidence. The plan to overhaul and upgrade the nation’s infrastructure and promote green policies will require a huge amount of non-ferrous metals. While demand remains 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.
Zacks Industry Rank Indicates Weak 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 an 11 stock group within the broader Zacks Basic Materials Sector, currently carries a Zacks Industry Rank #169, which places it at the bottom 33% 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. Over the past month, the industry’s earnings estimate for the current year has gone down 1%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500 But Outperforms Sector
The Zacks Mining- Non Ferrous Industry has outperformed its own sector but lagged the Zacks S&P 500 composite over the past 12 months. The stocks in this industry have collectively gained 12.8% in the past year compared with the Zacks Basic Materials sector growth of 0.8%. The S&P 500 has rallied 23.8% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the 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 5.62X compared with the S&P 500’s 14.78X. The Basic Materials sector’s trailing 12-month EV/EBITDA is at 5.55X. 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 6.40X.
3 Mining-Non Ferrous Stocks to Keep an Eye On
Freeport-McMoRan: The company’s exploration activities near existing mines, which are focused on expanding reserves, will drive growth. Freeport-McMoRan will benefit from an 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. Cerro Verde's expanded operations benefit from cost efficiencies, and large-scale and long-lived reserves. It completed the Lone Star copper leach project and is on track to produce around 200 million pounds of copper annually. Focus on cost management and lowering debt levels is commendable. Shares of the company have gained 18.8% over the past three months.
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 of copper concentrates. The Zacks Consensus Estimate for earnings for fiscal 2022 has moved up 19% over the past 90 days. The estimate indicates year-over-year growth of 28.1%. FCX has a trailing four-quarter earnings surprise of 4.3%, on average. It has a long-term estimated earnings growth rate of 29%. The company currently carries a Zacks Rank #3 (Hold).
Southern Copper: The company has the largest copper reserves in the industry and operates high-quality, world-class assets in investment-grade countries, such as Mexico and Peru. Its constant focus on increasing low-cost production is commendable. It will gain from 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. Peru’s national output is anticipated grow to 225000 tons in 2022. Southern Copper’s total investment program in Peru runs to $7.9 billion. The company maintains its target to produce 1.9 million tons by 2028 by developing its organic growth projects. Backed by these factors, shares of the company have gained 9.1% in the last three months.
The Zacks Consensus Estimate for the Phoenix, AZ-based company’s fiscal 2022 earnings has been revised upward by 4% over the past 60 days. It has a trailing four-quarter earnings surprise of 6.6%, on average. The company, which engages in mining, exploring, smelting, and refining copper and other minerals, has a long-term estimated earnings growth of 16%. It currently carries a Zacks Rank #3.
Price: SCCO
Energy Fuels: The company recently joined forces with Nanoscale Powders LLC for the development of a novel technology for the production of rare earth element ("REE") metals that is expected to revolutionize the rare earth metal making industry by lowering production costs, reducing energy consumption and minimizing greenhouse gas emissions. Shares of the company have appreciated 29.7% over the past three months along with uranium prices due to the entry of financial entities into the market who are buying uranium on the spot market with a stated intent to hold the inventory for the long term. With several existing uranium mines on standby and significant inventories, the company is actively seeking out opportunities to supply uranium to nuclear utilities under term contracts while also evaluating the potential to sell some inventory on the spot market to capitalize on the price increases and market improvement. Energy Fuels continues to make rapid progress toward positioning its White Mesa Mill as the country’s "Critical Minerals Hub," by maintaining the Mill's key uranium and vanadium production capabilities while further diversifying its portfolio to include rare earth elements production.
The Lakewood, CO-based company, is a leading U.S.-based uranium mining company, supplying uranium to major nuclear utilities. It produces vanadium from certain of its projects. The Zacks Consensus Estimate for the company’s fiscal 2022 earnings has remained unchanged over the past 60 days and indicates year-over-year growth of 38%. It currently carries a Zacks Rank #3.
Price: UUUU
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3 Non Ferrous Metal Mining Stocks to Watch Amid Industry Woes
The prospects of the Zacks Mining - Non Ferrous industry look bleak at the moment given apprehensions regarding slowing demand and economic activity due to the rapid spread of the Omicron variant. On top of this, the industry players are grappling with inflated input costs, labor shortages and supply chain issues.
In this scenario we suggest keeping an eye out for companies like Freeport-McMoRan Inc. (FCX - Free Report) , Southern Copper Corporation (SCCO - Free Report) and Energy Fuels Inc. (UUUU - Free Report) . These are poised to gain on the back of 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 a wide array of industries that include 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 assessment of ways to extract and process the ore efficiently, safely and responsibly precedes actual mining. The miners continually search for 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 Mining-Non Ferrous Industry
The Imminent Threat of Omicron Variant: When the coronavirus pandemic struck, it impacted non-ferrous metal prices last year barring gold, which gained on the safe-haven demand. Miners had to curtail or stop production to adhere to restrictions imposed by various governments to stem the spread of COVID-19. The slowdown in industrial activity severely impacted demand for industrial metals like copper and silver. Commodity prices have regained ground since, courtesy of improving industrial activity globally, the rollout of vaccines, optimism regarding a strong US economic growth and robust demand from China. However, the rising number of infections due to the Omicron variant and impending fears that it might hamper the ongoing economic recovery might hurt the industry again.
Cost Control & Innovation to Increase Efficiency: The industry has been facing a shortage of skilled workforce, which has led to a spike in wages. Labor-related disputes can be damaging to production and revenues. The industry players are grappling with escalating production costs including electricity, water and materials as well as supply chain issues. 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 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. The passage of the $1.2 trillion infrastructure bill in the House instills confidence. The plan to overhaul and upgrade the nation’s infrastructure and promote green policies will require a huge amount of non-ferrous metals. While demand remains 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.
Zacks Industry Rank Indicates Weak 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 an 11 stock group within the broader Zacks Basic Materials Sector, currently carries a Zacks Industry Rank #169, which places it at the bottom 33% 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. Over the past month, the industry’s earnings estimate for the current year has gone down 1%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500 But Outperforms Sector
The Zacks Mining- Non Ferrous Industry has outperformed its own sector but lagged the Zacks S&P 500 composite over the past 12 months. The stocks in this industry have collectively gained 12.8% in the past year compared with the Zacks Basic Materials sector growth of 0.8%. The S&P 500 has rallied 23.8% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the 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 5.62X compared with the S&P 500’s 14.78X. The Basic Materials sector’s trailing 12-month EV/EBITDA is at 5.55X. 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 6.40X.
3 Mining-Non Ferrous Stocks to Keep an Eye On
Freeport-McMoRan: The company’s exploration activities near existing mines, which are focused on expanding reserves, will drive growth. Freeport-McMoRan will benefit from an 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. Cerro Verde's expanded operations benefit from cost efficiencies, and large-scale and long-lived reserves. It completed the Lone Star copper leach project and is on track to produce around 200 million pounds of copper annually. Focus on cost management and lowering debt levels is commendable. Shares of the company have gained 18.8% over the past three months.
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 of copper concentrates. The Zacks Consensus Estimate for earnings for fiscal 2022 has moved up 19% over the past 90 days. The estimate indicates year-over-year growth of 28.1%. FCX has a trailing four-quarter earnings surprise of 4.3%, on average. It has a long-term estimated earnings growth rate of 29%. The company currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price: FCX
Southern Copper: The company has the largest copper reserves in the industry and operates high-quality, world-class assets in investment-grade countries, such as Mexico and Peru. Its constant focus on increasing low-cost production is commendable. It will gain from 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. Peru’s national output is anticipated grow to 225000 tons in 2022. Southern Copper’s total investment program in Peru runs to $7.9 billion. The company maintains its target to produce 1.9 million tons by 2028 by developing its organic growth projects. Backed by these factors, shares of the company have gained 9.1% in the last three months.
The Zacks Consensus Estimate for the Phoenix, AZ-based company’s fiscal 2022 earnings has been revised upward by 4% over the past 60 days. It has a trailing four-quarter earnings surprise of 6.6%, on average. The company, which engages in mining, exploring, smelting, and refining copper and other minerals, has a long-term estimated earnings growth of 16%. It currently carries a Zacks Rank #3.
Price: SCCO
Energy Fuels: The company recently joined forces with Nanoscale Powders LLC for the development of a novel technology for the production of rare earth element ("REE") metals that is expected to revolutionize the rare earth metal making industry by lowering production costs, reducing energy consumption and minimizing greenhouse gas emissions. Shares of the company have appreciated 29.7% over the past three months along with uranium prices due to the entry of financial entities into the market who are buying uranium on the spot market with a stated intent to hold the inventory for the long term. With several existing uranium mines on standby and significant inventories, the company is actively seeking out opportunities to supply uranium to nuclear utilities under term contracts while also evaluating the potential to sell some inventory on the spot market to capitalize on the price increases and market improvement. Energy Fuels continues to make rapid progress toward positioning its White Mesa Mill as the country’s "Critical Minerals Hub," by maintaining the Mill's key uranium and vanadium production capabilities while further diversifying its portfolio to include rare earth elements production.
The Lakewood, CO-based company, is a leading U.S.-based uranium mining company, supplying uranium to major nuclear utilities. It produces vanadium from certain of its projects. The Zacks Consensus Estimate for the company’s fiscal 2022 earnings has remained unchanged over the past 60 days and indicates year-over-year growth of 38%. It currently carries a Zacks Rank #3.
Price: UUUU