The Sandfire Resources Ltd (ASX: SFR) share price jumped this morning after it posted a big increase in profit and dividend as it supported the theory of a commodities “supercycle”.
Shares in the copper miner surged 4.9% to a 52-week high of $5.86 this morning when the S&P/ASX 200 Index (Index:^AXJO) added 0.6%.
Sandfire it pointed to signs that the recent surge in the copper price to an eight-year high may only be the start of a prolonged bull market for the metal.
Sandfire results fanning supercycle speculation
The run-up in copper and other commodities is fuelling speculation that the world is on the cusp of a commodities supercycle. Not all experts agree, but Sandfire has planted its flag in this debate. I am sure the miner isn’t trying to talk up its own book!
“Many of the global investment banks have recently upgraded their short and medium term price outlooks to US$9,000 –$10,000/tonne, citing what they see as the start of a prolonged copper bull market,” said Sandfire’s chief executive Karl Simich.
“This is certainly reflected in what we see with demand from our key customers, and also in the constrained development pipeline of new copper projects.”
The rising copper price lifts all boats, of course. But the Sandfire share price is outpacing its peers at the time of writing. The OZ Minerals Limited (ASX: OZL) share price advanced 0.8% to $22.59 and the South32 Ltd (ASX: S32) share price added 1.4% to $2.84.
Sandfire profit nearly doubled
Investors got excited about Sandfire when it posted a near doubling in interim net profit of $60.8 million compared to 2019’s $34.2 million. It also lifted its first half dividend to 8 cents a share from 5 cents that is paid this time last year.
The lofty copper price helped push Sandfire’s sales revenue to $355.6 million in the six months to end December 2020 even as sales volume dipped to 30,856 tonnes of copper. In contrast, it posted revenue of $313.1 million in 1HFY19 when it sold 33,616 tonnes of the red metal.
The copper price ended 2020 at around US$8,000 a tonne. It climbed further since to around US$9,000 a tonne.
Cashed up and ready to spend
Pleasing performance at Sandfire’s flagship DeGrussa mine in Western Australia also helped underpinned the solid result.
That’s great news for Sandfire’s cash flow. Cash from operating activities jumped $28.7 million to $137.8 million in 1HFY20.
The cash will come in handy as management looks to commit to the US$259m T3 Motheo mine development in Botswana.
“Copper is one of the key ‘future-facing’ metals required to support the world’s transition to a low-carbon future,” added Simich.
“Demand is predicted to soar as global investment in renewable energy continues to grow and the global economic recovery gains momentum.”
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Motley Fool contributor Brendon Lau owns shares of OZ Minerals Limited and South32 Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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