Commodity prices took a hit in the first half of last year because the COVID-19 pandemic halted manufacturing worldwide. However, the commodities markets have begun their recovery with the resumption of economic activities and now seem poised to grow significantly in the coming months. Notably, the Invesco DB Commodity Index Tracking Fund (DBC) has returned 26.7% over the past six months, compared to the S&P 500’s 21.7% gains. In fact, copper prices reached their 10-year high in February this year.
While China is leads economic growth and commodity consumption globally, economists at Goldman Sachs (GS) recently raised their GDP growth expectations for the U.S. economy to 8% for 2021. A resurgence in domestic industrial activities should drive domestic inflation this year, and investors will likely scoop up metals and other commodities to hedge against inflationary pressure.
Furthermore, President Biden’s ambitious urbanization and infrastructure plan, if implemented over the next four years, should buoy domestic demand for commodities. This, coupled with persisting global supply chain constraints, should further drive commodity prices north.
The current global economic recovery might even unleash a new commodity super cycle. As such, we believe Southern Copper Corporation (SCCO), Fortescue Metals Group Limited (FSUGY), and Pretium Resources, Inc. (PVG) are well-positioned to benefit from this uptrend and deliver handsome returns.
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Southern Copper Corporation (SCCO)
SCCO is one of the largest integrated copper producers in the world. It currently possesses the largest copper reserves in the industry. The company also produces silver and molybdenum, its main by-product. Arizona-based SCCO conducts its mining and exploration activities in Argentina, Chile, Ecuador, Mexico and Peru.
SCCO’s current portfolio for approved projects in Peru totals $2.8 billion, of which $1.6 billion has already been invested. Integrating the up-and-coming Michiquillay ($2.5 billion) and Los Chancas ($2.6 billion) projects, the company’s total investment program in Peru reflects a commitment of $7.9 billion. SCCO is benefiting immensely from its efforts to grow in Peru given that the country is currently the world’s second largest producer of copper and holds nearly 13% of the global copper reserves.
In the fourth quarter (ended December 31, 2020), SCCO’s total net sales increased 26.7% year-over-year to $1.85 billion. This growth was driven largely by higher metal prices, particularly copper, silver and zinc. Its copper production during the quarter improved 1.3% versus the prior year, totaling 259,744 tons, due to higher production at all its mines, except its Toquepala mine. Its operating cash cost per pound of copper (net of by-product credits) was $0.67, representing an improvement of 31.3%, compared to the year-ago value of $0.98. SCCO reported EPS of $0.76, rising 90% year-over-year.
SCCO produced more than one million tons of copper in 2020, representing a milestone in the company’s history. Moreover, the production was executed at a competitive operating cash cost despite pandemic disruptions, reflecting SCCO’s operational efficiency. As a result, the stock has surged 190% over the past year. Wall Street analysts expect SCCO’s current year revenue and EPS to rise 3.5% and 53.2%, respectively. In addition, SCCO’s growth projects are on track, which should help the company achieve its goal of producing 1.9 million tons of copper production ahead of its originally planned 2028 timeline.
SCCO’s POWR Ratings reflect this promising outlook. SCCO has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
SCCO has a B grade of B for Growth, Momentum and Stability. In the 42 stock Industrial - Metals industry, it is ranked #4.
In total, we rate SCCO on eight different levels. Click here to check additional POWR Ratings for SCCO (Value, Sentiment and Quality).
Fortescue Metals Group Limited (FSUGY)
Australia-based FSUGY engages in the exploration and sale of iron ore in the Americas, China, and internationally. The company also explores for copper and gold deposits. FSUGY owns and operates the Chichester Hub and the Solomon Hub. The company has also been developing the Eliwana mine in Western Australia and commenced ore processing at the mine last December. In addition, the company holds a portfolio of properties located in Ecuador and Argentina.
Fortescue Future Industries Pty Ltd, a wholly owned subsidiary of FSUGY, and Port of Açu, the largest privately owned deep-water port-industrial complex in Latin America, recently signed a memorandum of understanding (MOU) to assess an opportunity to develop hydrogen-based green industrial projects in Brazil. Also, FSUGY entered a partnership with Oxfordshire-based Williams Advanced Engineering (WAE) earlier this month to design and integrate a battery system to power electric mining haul trucks, as an important first step to decarbonizing its mining haul fleet.
In its fiscal half year that ended December 31, FSUGY reported revenue of $9.3 billion, increasing 44% compared to the same period last year. Though its iron ore mining in the previous quarter declined 14% sequentially to 50 million tonnes (mt), the company shipped 46.4 mt ores during the quarter, contributing to a record shipment of 90.7 mt for the first half of the year. In addition , its average revenue realization came in at 90%, improving 7% year-over-year. FSUGY reported EPS of $1.33, rising nearly 40% versus the comparable period last year.
FSUGY completed the construction and installation of a wet high-intensity magnetic separation (WHIMS) plant, a strategic beneficiation initiative to recover a higher portion of fine grain ore feed, at its Christmas Creek ore processing facility in the previous quarter. The plant throughput is forecasted to ramp up to its installed capacity and expected yield later this year. The stock has returned 173% over the past year because strong operating performance allowed the company to deliver record shipments. FSUGY may climb further because the company’s management expects iron ore shipments for the full fiscal year to be in the range of 175 to 180 mt.
FSUGY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which translates to a Strong Buy. FSUGY has a B grade for Value, Momentum, and Quality. It is ranked #3 of 56 stocks in the Miners - Diversified industry.
Beyond what we.ve stated above, we have also given FSUGY grades for Growth, Sentiment, and Stability. Get all FSUGY’s ratings here.
Pretium Resources, Inc. (PVG)
PVG is a Canada-based mining company that acquires, explores for, and develops precious metals, primarily gold and silver, in the Americas. It holds a 100% interest in the Brucejack project, which consists of four mining leases and six mineral claims. PVG recently divested its non-core and undeveloped Snowfield property, which is located in northwest British Columbia..
In February, PVG intercepted high-grade gold mineralization at three new areas in the first resource expansion drill program at the Brucejack Mine since commercial production commenced in 2017. PVG also conducted the 2020 regional grassroots exploration program at the Brucejack Mine back in December, which included 25,350 meters of diamond drilling in four zones. The highlight from the program was the discovery of epithermal-style gold mineralization in the Hanging Glacier Zone, located four kilometers from the mine, thereby demonstrating PVG’s district-scale potential.
In the fourth quarter, ended December 31, PVG generated revenue of $169.6 million, increasing 25% year-over-year, driven by higher gold prices realized on ounces sold and partially offset by lower gold ounces sold in the period due to lower production. However, the Brucejack Mine produced 88,299 ounces of gold and 107,930 ounces of silver, and a total of 309,661 tonnes of ore, equivalent to a throughput rate of 3,366 tonnes per day, were processed. Its adjusted EPS was $0.28, rising 55.6%, compared to the year-ago value of $0.18.
PVG has gained 88.7% over the past year. The company plans to continue advancing underground development at an accelerated rate because the expanded access will provide PVG more flexibility to build drilled-off stope inventory, allow mining operations to optimize production, and provide additional platforms for resource expansion drilling. Its management also expects gold production at the Brucejack Mine for 2021 to be in the range of 325,000 to 365,000 ounces, at a targeted gold recovery of 97%.
It is no surprise that PVG has an overall rating of B, which equates to Buy in our POWR Ratings system. PVG has a grade of B for Growth, Momentum and Quality. It is ranked #7 in the Miners - Diversified industry.
Click here to see the additional POWR Ratings for PVG (Value, Stability, and Sentiment).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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SCCO shares were trading at $69.51 per share on Wednesday afternoon, up $1.34 (+1.97%). Year-to-date, SCCO has gained 7.65%, versus a 5.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies.
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