Chicago, IL – March 14, 2025 – Today, Zacks Equity Research discusses Southern Copper Corp. SCCO, Freeport-McMoRan FCX and Amerigo Resources ARREF.
Link: https://www.zacks.com/commentary/2428734/3-non-ferrous-metal-mining-stocks-to-watch-in-a-challenging-industry
The prospects of the Zacks Mining - Non Ferrous industry look bleak as weak demand in China weighs on metal prices. Industry players also grapple with inflated costs, labor shortages and supply-chain issues. However, the demand for non-ferrous metals is expected to be supported by the energy-transition trend, which should buoy the industry.
Against this backdrop, we suggest keeping an eye on companies like Southern Copper Corp., Freeport-McMoRan and Amerigo Resources. These companies are poised to gain from their endeavors to build reserves and control costs while investing in technology and improving production efficiency.
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 used by various industries, including aerospace, automotive, packaging, construction, machinery, electronics, transportation, jewelry, chemical and nuclear energy.
Mining is a long, complex and capital-intensive process. The actual mining operations are preceded by significant exploration and development to evaluate the size of the deposit. The process is followed by the assessment of ways to extract and process the ores efficiently, safely and responsibly. Miners seek 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.
Volatility in Metal Prices is Concerning: Copper prices have been adversely impacted by weak demand in China due to the property crisis and economic uncertainty. Prices have moved up lately on expectations that the United States will push ahead with tariffs on copper to encourage domestic production.
Meanwhile, in China, ample supply continues to weigh on the market. Uranium prices have declined 25% year over year and are currently at $63.55 per pound - the lowest in 18 months. The decline comes amid a landscape of adequate supply and uncertain demand. Gold is hovering close to record levels as escalating global trade tensions continue to fuel safe-haven demand. Silver has gained 33% in a year, driven by these factors.
Expectations of Federal Reserve rate cuts further fueled the demand for precious metals, with the prospect of a lower interest rate environment adding to silver's appeal. Overall, industry players are dealing with depleting resources, declining supply in old mines and a lack of new mines. Development projects are inherently risky and capital-intensive. While demand has been strong, there will be an eventual deficit in metal supply, leading to a situation that will bolster metal prices. This, in turn, should favor the industry in the long run.
Labor Shortage, High Costs Remain Worrisome: The industry has been facing a shortage of skilled workforce lately, which has hiked wages. Labor-related disputes can be damaging to production and revenues. Industry players are grappling with escalating production costs, including electricity, water and materials, as well as higher freight expenses and supply-chain issues.
Since the industry cannot control the prices of its products, it focuses on improving the sales volume, increasing the operating cash flow and lowering unit net cash costs. Industry participants are opting for alternate energy sources to minimize fuel-price volatility and secure supply. Miners are now committed to cost-reduction strategies and digital innovation to drive operating efficiencies.
Strong Demand to Support the Industry: The demand for non-ferrous metals is expected to remain high in the future, given their wide use in primary sectors, including transportation, electricity, construction, telecommunication, energy and information technology. The surging demand for electric vehicles and renewable energy is expected to be a significant growth driver for metals like copper and nickel in the years to come. The overhauling and upgrading of the nation's infrastructure and promoting green policies per the U.S. Infrastructure Investment and Jobs Act will also require a huge amount of non-ferrous metals.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull prospects for the near term. The Zacks Mining - Non Ferrous industry, a 12-stock group within the broader Zacks Basic Materials Sector, currently carries a Zacks Industry Rank #177, which places it in the bottom 28% of 247 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry's recent stock-market performance and its valuation picture.
The Zacks Mining- Non Ferrous Industry has underperformed its sector and the Zacks S&P 500 composite over the past 12 months. The stocks in this industry have collectively lost 11.7% in the past year compared with the Zacks Basic Materials sector's decline of 4.1%. The S&P 500 has risen 8.9% in the said time frame.
Based on the forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Mining- Non Ferrous stocks, we see that the industry is currently trading at 6.36X compared with the S&P 500's 13.44X. The Basic Materials sector's forward 12-month EV/EBITDA is 6.68X.
Over the past five years, the industry has traded as high as 9.47X and as low as 3.40X, the median being 6.53X.
Southern Copper: The company has the largest copper reserve in the industry and operates world-class assets in investment-grade countries, such as Mexico and Peru. SCCO expects copper production to be around 967,000 tons in 2025, in line with 2024. This will be supported by higher production in Peru and production from the new Buenavista zinc concentrator.
The company's capital investment program for this decade exceeds $15 billion and includes investments at the Buenavista Zinc, Pilares, El Pilar and El Arco projects in Mexico and the Tia Maria, Los Chancas and Michiquillay projects in Peru. Given its constant commitment to increasing low-cost production and growth investments, SCCO is well-poised to continue delivering an enhanced performance.
The Zacks Consensus Estimate for the Phoenix, AZ-based company's fiscal 2025 earnings indicates year-over-year growth of 7.6%. The estimate has moved up 2% over the past 30 days. SCCO has a long-term estimated earnings growth rate of 11%. SCCO shares have dipped 2.7% in a year. The company currently carries a Zacks Rank #2 (Buy).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Freeport-McMoRan: The company's strategy to expand reserves through exploration near existing mines is expected to fuel growth. FCX is implementing the latest technologies and data analytics in leaching processes across its North America and South America operations. The leach initiative provided an approximate 50% increase in incremental copper in 2024 compared with 2023 in North America. FCX is targeting an annual run rate of 300 million pounds by this year-end.
Freeport has a policy of distributing 50% of the available cash flows to shareholders and the balance to reduce debt and make investments in growth projects. Its organic project pipeline containing Kucing Liar/Grasberg District, Bagdad 2X, El Abra expansion and Lone Star sulfide expansions remains strong.
The Zacks Consensus Estimate for FCX's earnings for fiscal 2025 indicates year-over-year growth of 14.9%. The estimate has moved up 1.2% over the past 30 days. FCX has a trailing four-quarter earnings surprise of 15.2%, on average. It has a long-term estimated earnings growth rate of 26.6%. The Phoenix, AZ-based company currently carries a Zacks Rank of 3. The stock has declined 13.5% in the past year.
Amerigo Resources: In 2024, the MVC operations produced 64.6 million pounds of copper, delivering a 12% year-over-year improvement and 4% over ARREF's guidance. Copper deliveries reached a record 65 million pounds. Net income for 2024 was $19.2 million, a solid improvement from $3.4 million in 2023. For 2025, Amerigo projects production of 62.9 million pounds of copper and 1.3 M pounds of molybdenum, marking the fifth year of increased production guidance.
Backed by its healthy cash balances, minimal debt and robust financial performance, the company continues its capital return strategy that was initiated in September 2021. In 2024, Amerigo returned $21.2 million to shareholders (including both quarterly and performance dividends). Notably, this was the first year the company employed all the elements of the strategy - quarterly dividends, performance dividends and share buybacks. The company is planning to end 2025 with a debt-free balance sheet.
The Zacks Consensus Estimate for Vancouver, Canada-based Amerigo Resources' earnings indicates year-over-year growth of 75%. The estimate has remained unchanged over the past 30 days. ARREF has a long-term estimated earnings growth rate of 20%. It currently carries a Zacks Rank #3 (Hold). The stock has gained 30% in the past year.
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Freeport-McMoRan Inc. (FCX) : Free Stock Analysis Report
Southern Copper Corporation (SCCO) : Free Stock Analysis Report
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