RBC says lithium prices could rebound as marginal suppliers exit the market in Q1 and Q2 this year
\nGoldman continues to see spodumene heading lower, but both are bullish on copper
\nWe look at the top large cap mining picks from Goldman and RBC\u2019s Aussie analysts ahead of the first production reports of the year<\/p>\n
Investment bank RBC have taken a scythe sharper than the Grim Reaper\u2019s to lithium forecasts, chopping 63% off its forecast for the first quarter of 2024.<\/p>\n
But in an update of its Australian large cap mining coverage and commodity prices, analyst Kaan Peker says benchmark prices for spodumene concentrate sold by WA\u2019s hard rock lithium miners can lift from US$1100\/t in Q1 to US$1300\/t in Q2, US$1600\/t in Q3 and US$1500\/t in Q4.<\/p>\n
RBC had previously seen spodumene \u2014 which it has maintained long term prices on of US$1250\/t \u2014 falling to US$3000\/t in the first quarter and down to US$2700\/t by year\u2019s end.<\/p>\n
Those prices would have drawn extraordinary free cash flow for Australian producers.<\/p>\n
At current prices though, Peker warned some operations were marginal, with Arcadium Lithium\u2019s (ASX:LTM) <\/a>Mt Cattlin mine near Ravensthorpe on WA\u2019s South Coast near break even and a future cutback now uneconomic.<\/p>\n Spodumene prices tumbled over 80% in 2023 having risen to more than US$8000\/t in late 2022, despite a more than 30% rise in EV sales globally. Core Lithium (ASX:CXO)<\/a> has already paused mining at its lossmaking Finniss mine in the Northern Territory.<\/p>\n \u201cWhile we forecast a surplus in 2024, with supply increasing by ~350kt of LCE above a 220kt increase in demand, we believe prices are near a bottom and expect prices to trough in Q1-2 2024, with supply responding to depressed prices\/inventory restocking,\u201d Peker said.<\/p>\n It has also cut hydroxide and carbonate price forecasts 48% for Q1 to US$15,500\/t and US$15,250\/t, rising to US$19,250t and US$19,000\/t by the third quarter.<\/p>\n RBC meanwhile has gone bearish (in line with other analysts it should be said) on nickel, cutting price forecasts by 22% by US$2 a pound to US$7\/lb due to the growth of supply in Indonesia.<\/p>\n But it has lifted its copper outlook by 13% to US$4.25\/lb with supply expected to disappoint by as much as 700,000t on previous estimates and raised its long term copper outlook 14% to US$4\/lb on energy transition demand and higher incentive prices and increased iron ore price expectations 44% to US$130\/t for March and 40% to US$105\/t for September, dropping again to US$95\/t in the fourth quarter.<\/p>\n \u00a0<\/p>\n But a bear case on lithium comes, of course, from Goldman Sachs \u2014 whose predictions of radical price falls in 2022 (perhaps rightly) stirred panicked sell-offs across lithium equities.<\/p>\n Analysts led by veteran Paul Young say GS, which sees a 202,000t surplus of lithium materials in 2024, recently lowered their carbonate and hydroxide 12 month targets to US$11,000\/t and US$12,000\/t, with spodumene to fall to under US$1000\/t in 2024.<\/p>\n Their picks are the base metals and especially copper and aluminium, sharing RBC\u2019s concerns about a \u2018supply bind\u2019 against stronger Chinese demand.<\/p>\n \u201cThese factors should support a positive inflection in price performance for copper and aluminium in particular,\u201d they said. <\/p>\n \u201cWe are also positive on alumina due to our bullish view on aluminium, bauxite supply concerns in China, and cost curve support with the ex-China cost curve indicating that ~5-10% of supply (~5-10Mt) or ~10 refineries losing cash at the current Aus FOB spot price (after making adjustments).\u201d<\/p>\n That has seen alumina stocks Alumina Ltd (ASX:AWC)<\/a>, which has caught a bump from news Alcoa plans to close its lossmaking Kwinana refinery in WA, and South32 (ASX:S32)<\/a> upgraded to buys by Goldman.<\/p>\n Goldman expects copper prices to average US$4.20\/lb in 2024 and alumina to lift 20% to US$370\/y.<\/p>\n They join Rio Tinto (ASX:RIO)<\/a>, BHP (ASX:BHP)<\/a>, Champion Iron (ASX:CIA)<\/a>, Iluka Resources (ASX:ILU)<\/a>, Coronado (ASX:CRN)<\/a>, Lynas (ASX:LYC)<\/a> and BlueScope Steel (ASX:BSL)<\/a> among its large cap metals picks.<\/p>\n Sandfire Resources (ASX:SFR)<\/a> is also up to a neutral from a sell, incorporating Goldman\u2019s positive copper and zinc outlooks for 2024. Its sell ratings are Fortescue (ASX:FMG)<\/a>, New Hope (ASX:NHC)<\/a> and MinRes (ASX:MIN)<\/a> largely on valuation, but also on uncertainties around how FMG\u2019s decarbonisation plans will effect its cash flows with Young Et. Al. projecting a number of green energy projects being studied by FMG could come in with combined capex of between US$10-20 billion.<\/p>\n However, for now FMG\u2019s free cash flow yield will stay at around 10% with recent iron ore prices of around US$140\/t.<\/p>\n \u00a0<\/p>\n <\/span>\u00a0<\/p>\n \u00a0<\/p>\n Yet no two sets of analysts think alike.<\/p>\n While Goldman\u2019s bearish lithium take has MinRes (~$63.50) at a $53 price target, RBC counts it as one of its top outperformers, with a $75\/sh target price.<\/p>\n \u201cMIN offers 1) FY25e earnings growth, increasing lithium exposure, and strong multi-commodity growth pipeline, 2) the next 6-12 months should see operational improvements and growth from both Wodgina and Mt Marion, 3) increased clarity around MIN\u2019s gas and lithium strategy, 4) peak gearing FY25 as capex declines and cash generation increases, 5) production growth from Iron Ore, Lithium and Gas is expected over the next 12-24 months, which should support earnings,\u201d Peker said.<\/p>\n He has Sandfire at a $7.75 target price and outperform rating as well, over a dollar above GS\u2019 $6.70 target.<\/p>\n \u201cThe next 6-12 months should see operational improvements and growth at MATSA (in Spain) and Motheo (in Botswana), a reduction in gearing, and significant EBITDA generation and uplift,\u201d he said.<\/p>\n \u201cWith Motheo ramping up and capex rolling off, we see FCF stepping up to more than 15%. Our view is that Sandfire provides a lower relative risk to copper exposure vs other players in the sector, and we believe that SFR\u2019s growth is undervalued and will support a higher share price.\u201d<\/p>\n Meanwhile, lower cost lithium miner Pilbara Minerals (ASX:PLS)<\/a> and BHP, with a PT updated from $41 to $45 a share are also among RBC\u2019s faves.<\/p>\n Other outperformers include South32 (ASX:S32)<\/a>, where a $4 target price would be around 20% above current levels, and IGO (ASX:IGO)<\/a>, which RBC remains bullish on despite pulling its PT down 36% to $9.25\/sh on its lowered lithium forecasts.<\/p>\n The nickel assets it has picked up from Western Areas have also been massive duds, but Peker says RBC still sees \u201cstrong spodumene and hydroxide production growth, and believe in the long-term optionality that lies in Greenbushes,\u201d and projects an underlying net profit of $787m for FY24 (down 34% on prior estimates).<\/p>\n IGO holds a near 25% stake in Greenbushes in WA\u2019s South West, the world\u2019s largest, cheapest and highest grade hard rock lithium producer.<\/p>\n RBC has an underperform rating on FMG but lifted its price target from $18 to $24 (current price $27.16), with sector perform ratings on troubled copper stock 29Metals (ASX:29M)<\/a> and Rio Tinto.<\/p>\n \u00a0<\/p>\n <\/span>\u00a0 The post RBC says lithium prices will start recovery this year as investment banks rate top large cap mining picks<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"Bear case<\/h2>\n
GS large mining coverage share prices today<\/h2>\n\n
RBC: Who will be the top performers?<\/h2>\n
RBC mining picks share prices<\/h2>\n\n
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