Mining Minutes | A Very Different Kind of Cycle

Research evidence excerpt

Mining Minutes | A Very Different Kind of Cycle

metals, supply can ramp up quickly enough to meet demand, but that is not the case in copper. We

expect persistent notional market deficits in copper to require higher prices to ration demand so that

the market balances. We forecast a peak full-year copper price of $8/lb for 2030-2031 (vs current

spot LME of $6.01/lb), but this could be a conservative price assumption. The recent volatility in the

sector, which seems to have been sparked by a hawkish Fed, does not change our view on this at all.

We believe we will reach a point at which the market assumes $8/lb is a ‘normalized’ price and uses

EV/EBITDA multiples of 8-10x for copper miners with EBITDA forecasts based on $8/lb copper.

Another important difference between this cycle and prior EM cycles is that EM cycles tend to

lead to a weaker dollar. A US-led cycle likely implies a stronger dollar. Is a weaker dollar better, all

else equal? Yes, of course, it is. But a strong dollar due to growth in FAI in the US could still coincide

with rising prices of copper and other electrification metals. Our point here is that we should not be

afraid of a strengthening dollar that results from a strong US economy.

While we are structural copper bulls, one key risk in the shorter term is inflation. If inflation is

due to the Strait of Hormuz having closed, then it should subside without the Fed needing to take

aggressive action. If inflation is due to the economy already overheating, the Fed may need to

take more aggressive tightening measures, which would likely be a negative for commodity prices. Christopher LaFemina, CFA * | Equity Analyst

When we combine that risk with the typical seasonal weakness in the sector during July-Sept, we +1 (212) 336-7304 | clafemina@jefferies.com