Right now, it\u2019s the gold and thermal coal companies which feature heavily among the world\u2019s cheapest, according to Morningstar mining analyst Jon Mills.<\/p>\n
But before we go any further \u2013 it might be best to retrace some\u00a0 Morningstar nomenclature (inspired as it is by that doyen of stock pickers, Mr Warren Buffet). Instead of a price target (PT) you\u2019ll hear Jon and his peeps talk about Fair Value estimates. Same thing.<\/p>\n
Gold prices are up on optimism that global interest rates are close to a peak. Traditionally,\u00a0there has been an inverse relationship between interest rates and gold prices.<\/p>\n
As rates rise, the yields on fixed-income assets like bonds become more attractive, reducing the appeal of gold which provides no yield.<\/p>\n
The opposite is also true. Falling rates could support gold and, in turn, gold miners\u2019 share prices.<\/p>\n
\u00a0<\/p>\n
\ufeff<\/span><\/span>\u00a0<\/p>\n Newmont is the cheapest commodity producer in Morningstar\u2019s\u00a0 coverage universe, Mills says.<\/p>\n It\u2019s the world\u2019s largest gold miner, with a portfolio reflecting three major deals in recent years.<\/p>\n \u201cFirst, it acquired fellow gold producer Goldcorp<\/strong> for a relatively mild premium in 2019. Not only did it avoid paying a high price, Newmont also extracted better performance at mines where Goldcorp struggled.<\/p>\n \u201cSecond, it combined its crown jewel Nevada assets with Barrick Gold\u2019s in a joint venture called Nevada Gold Mines, or NGM, also in 2019.\u201d<\/p>\n With Barrick as the operator, Newmont owns 38.5% of the love-in, which cut costs given the proximity of mines owned by the joint venture.<\/p>\n Then of course, Newmont also acquired the ASX gold miner Newcrest Mining (ASX:NCM)<\/strong><\/a> last year.<\/p>\n \u201cWe forecast Newmont to increase attributable gold sales to around 8.8 million ounces in 2027, up from roughly 7.3 million in 2023 pro forma for Newcrest on an annualised basis,\u201d Mill says.<\/p>\n \u201cThe increase is driven by higher gold production from its 38.5% and 40% stakes in the Nevada Gold Mines NYSE: NGM)<\/strong>, and its JVs with Pueblo Viejo<\/strong> and Barrick, respectively at Lihir, Penasquito and its mines in Ghana.<\/p>\n \u201cAbout 70% of Newmont\u2019s mid-cycle production in 2027 comes from the US, Canada, Australia and Ghana.\u201d<\/p>\n Jon says that as a commodity producer, Newmont is a price taker<\/em>.<\/p>\n \u201cThis means it really needs low-cost mines with long lives and a low installed capital base to support the longer-term excess returns needed to justify an economic moat.<\/p>\n \u201cWe assign a no-moat rating to Newmont (it) is placed around the middle of the gold industry AISC curve.<\/p>\n \u201cDue to the flatness of the industry cost curve, only miners in the lowest quartile tend to enjoy a material operating cost advantage. And that would need to be paired with an efficient invested capital base and long reserve life to warrant a moat. Newmont\u2019s costs are not low enough to justify a moat, and so we don\u2019t think Newmont exhibits a low-cost advantage.\u201d<\/p>\n NEW is currently trading at a 30% discount to Morningstar\u2019s fair value, according to Jon.<\/p>\n \u00a0<\/p>\n Further afield, Mills says that Morningstar\u2019s estimates for (no-moat) Barrick (NYS: GOLD)<\/strong>, Agnico Eagle (NYS: AEM)<\/strong>, and Kinross (NYS: KGC)<\/strong> \u201cmodestly\u201d rise to US$21.50 US$54.00, and US$5.50 respectively.<\/p>\n \u201cHowever, our fair values for no-moat Northern Star Resources (ASX:NST)<\/strong><\/a> , Evolution Mining (ASX:EVN)<\/strong><\/a> , and Perseus Mining (ASX:PRU)<\/strong><\/a> are unchanged at $11.30, $3.00, and $2.00, respectively.<\/p>\n Jon adds that a stronger AUD\/USD rate \u201cbroadly offsets\u201d a higher US dollar gold price.<\/p>\n\n \ufeff<\/span><\/span>\u00a0<\/p>\n \u00a0<\/p>\n Thermal coal miner Whitehaven Coal (ASX:WHC)<\/strong><\/a> remains materially undervalued, which Jon reckons reflects the many investors shunning coal investment.<\/p>\n \u201cLower thermal coal prices and a stronger Australian dollar drive our estimates for no-moat Whitehaven and New Hope Corp (ASX:NHC)<\/strong><\/a> , down 5% to $9.50 and down 7% to $5.70, respectively,\u201d he says.<\/p>\n Meanwhile, over in London, Jon adds that the lower thermal coal and nickel prices more than offset higher copper and zinc prices along with a stronger British pound, driving no-moat Glencore\u2019s (LON: GLEN)<\/strong> estimate down 3% to \u00a3500.00.<\/p>\n Morningstar also retains no-moat Teck\u2019s (NYS: TECK)<\/strong> $34 US estimate, with increased copper prices offset by a stronger Canadian dollar.<\/p>\n\n \ufeff<\/span><\/span>\u00a0<\/p>\n Closer to home, Aussie mineral sands specialist Iluka Resources\u2019 (ASX:ILU)<\/strong><\/a> is only momentarily on the back foot according to Mills.<\/p>\n China\u2019s massive property sector remains in a downturn impacting demand for mineral sands such as zircon, rutile, and synthetic rutile.<\/p>\n \u201cIluka and other major mineral sands suppliers have responded by reducing production and building inventory to try to stabilise prices. Even so, Iluka\u2019s near-term zircon sales are likely to be affected by its strategy to sell more lower-grade zircon-in-concentrate while zircon markets remain subdued.\u201d<\/p>\n \u201cAs such, we now assume zircon prices average around US$1,720 per metric ton in 2024, down from roughly US$1,810, before reverting to our unchanged assumed mid-cycle price of roughly US$1,610 per metric ton from 2027.\u201d<\/p>\n Rising interest rates and slowing housing markets in the west are also a headwind for Iluka, Jon adds.<\/p>\n\n <\/span> \u201cHowever, we think these concerns are more than reflected in its share price. Longer-term, maturing mines and a lack of large, high-grade, undeveloped resources are likely to support mineral sands prices. The company\u2019s proposed rare earths refinery at Eneabba is an option on elevated rare earths prices, and we think Iluka has cut a good deal with the Australian government, which is funding much of the refinery\u2019s construction cost.\u201d<\/p>\n \u00a0<\/p>\n Higher iron ore prices drive Jon\u2019s increased estimates for Morningstar\u2019s \u201cno-moat\u201d Fortescue (ASX:FMG)<\/strong><\/a> and \u201cwide-moat\u201d Deterra Royalties (ASX:DRR)<\/strong><\/a>, where targets rise 8% to $17.30 and up 5% to $4.40, respectively.<\/p>\n\n <\/span>\u00a0<\/p>\n Morningstar now sees iron ore averaging at about US$120 per metric ton from 2024 to 2026 based on the futures curve, up from roughly US$95 previously.<\/p>\n \u201cOur assumed midcycle iron ore price remains roughly US$60 per metric ton from 2027, based on our estimate of the marginal cost of production \u2013 acknowledging the rising costs across the industry due to inflation, along with supply discipline from the iron ore majors and mine depletion likely meaning the marginal cost is determined by smaller, higher-cost mines.<\/p>\n Jon says that estimate also considers the recovery of Vale\u2019s output and Simandou starting production.<\/p>\n \u201cWe forecast around 2.1 billion metric tons of global steel production in 2026, with production from China around half of this as its economy moves away from one reliant on fixed-asset investment to a more consumption-based economy, and as its scrap-based production increases.\u201d<\/p>\n \u201cAlong with higher copper prices, we raise our estimate for no-moat BHP (ASX:BHP)<\/strong><\/a> by 5% to $43, and reiterate our $116 estimate for no-moat Rio Tinto (ASX:RIO)<\/strong><\/a> , which we increased for similar reasons.<\/p>\n\n \ufeff<\/span><\/span>\u00a0<\/p>\n \u201cWe raise our assumed midcycle copper price to roughly US$3.60 per pound from 2027, up from around US$3.10. This is based on our updated estimate of the marginal cost of production, driven by inflation pushing up and steepening the industry cost curve.\u201d Jon told Stockhead.<\/p>\n Ongoing supply issues are also a bit of a contributing factor here, Jon reckons, with the main problems out of Chile and Peru, the world\u2019s two biggest exporters of the red metal.<\/p>\n \u201cFor example, Anglo American<\/strong> recently materially downgraded forecast copper production from its Chilean operations, while global mined supply has been further reduced by 1.5%-2.0% due to the Panamanian government forcing the closure of the Cobre Panama mine.\u201d<\/p>\n Closer to home, no-moat South32 (ASX:S32)<\/strong><\/a> estimate falls 3% to $3.80, with lower nickel and silver prices along with a stronger Australian dollar more than offsetting higher copper and zinc prices.<\/p>\n \u00a0<\/p>\n The views, information, or opinions expressed in the interview in this article do not represent the views of Stockhead.<\/em><\/p>\n Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.<\/em><\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n <\/span><\/p>\n The post Can you dig it? We\u2019ve unearthed the best value miners from across Morningstar\u2019s entire universe<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"Other goldies glitter<\/h2>\n
Coal: \u2018Materially undervalued\u2019<\/h2>\n
Iluka: Resistance is rutile<\/h2>\n
\n\u201cIluka\u2019s estimate falls 10% to $9.50, driven by reduced near-term zircon prices, the increased cost of its Eneabba rare earths refinery, and a stronger Australian dollar.\u201d<\/p>\nFMG and the lore of iron ore in \u201924<\/h2>\n
Copper shines<\/h2>\n