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Ongoing uncertainty for copper stocks

The US and China trade war has far-reaching consequences in the metals space, which spells ongoing uncertainty for copper and the companies that dabble in it.

Copper pricing has been weak for some time, but there was a glimmer of hope on the horizon last week with copper price’s biggest one day gain since 2013 when benchmark copper on the London Metal Exchange closed off September 21 at US$6363 a tonne.

Despite the short-lived surge, there wasn’t much of a relief-rally across the board for S&P/ASX 200 miners of the red metal and, in my opinion, it’s not yet the time to get aggressive about buying up on copper-related stocks.

But despite overall sector volatility and a reluctance of investors to pump funds into copper stocks, these three players are traveling well, which is a pretty good sign for things to come if the copper price does show some lasting improvement.

Copper-focused miner OZ Minerals Limited (ASX: OZL) recently reported expanded scope on its Eloise JV investment with Minotaur Exploration near Cloncurry with drilling since April 2018 uncovering “consistent and wide-spread” copper-gold intersections at Jericho.

OZ Minerals also has drilling underway at the Punt Hill and Pernatty Lagoon copper-gold projects, in a joint venture with Red Metal Limited with OZ having mobilised the first two rig sites at the project with first-pass drill tests to be completed by the end of the year.

OZ Minerals has seen some share price volatility in the last 12 months, but its balance sheet still looks solid, with the miner reporting its half-year net profit surged 59% to $128 million with a 33% increase in its interim dividend and zero debt.

The uptick in dividend was the first since 2014 but OZ Minerals seems to have a good grasp on its outgoings, with costs expected to fall for the second half of FY18 although many shareholders are wondering if some of its $493 million piggy bank of cash should be returned to them.

OZ seems well-poised to continue to make ground in the current climate, but if there is a deeper downturn in the copper prices on the horizon, margins could get the squeeze.

OZ Minerals shares are down half a percent at the time of writing to $9.35.

Mid-cap miner Sandfire Resources NL (ASX: SFR) has suffered a share price downturn in the past few months and is down 1.9% at the time of writing to $7.33.

Sandfire delivered a record $123 million net profit when it handed down its FY18 results in August – up 59% on FY17 with strong cash flow from operating activities and record sales revenue.

But investors have been cautious, with Sandfire shares a far cry from its 52-week share price high of $9.91 in June, despite Sandfire’s FY18 being its strongest year ever, with the added sweetener of 27c per share fully-franked full-year dividends – up from 18c per share in FY17.

Mineral explorer with interests in copper, nickel, and zinc, Independence Group NL (ASX: IGO) has performed well given the overall volatility of the sector, with its share price maintaining itself over the past year as its Nova and Tropicana projects drive results, but there has been no overwhelming support from investors despite strong FY18 results.

Independence Group reported an underlying EBITDA rise of 125% for FY18 with net cash jumping up 256%, revenue 85% and NPAT 210%.

Foolish Takeaway

For the time being, punters seem cautious on copper and I think it’s certainly a prudent approach to take, but low-priced buy-ins won’t last long if the copper price jumps up so it might pay to have a finger on the pulse here and a close eye on your watchlist favourites.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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