Treasure Chest: 29Metals, The Third Force In Copper

This story features 29METALS LIMITED, and other companies. For more info SHARE ANALYSIS: 29M

FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Citi initiates coverage of 29Metals with a Buy rating.

By Mark Woodruff

Whose Idea Is It?

Analysts at Citi.

The subject:

Copper miner 29Metals ((29M)).

In a case of near perfect timing, 29Metals floated on the ASX in July of this year at $2.00, and has since rallied more than 30% on rising copper prices.

As over 60% of the company’s revenue is from copper, and copper exposures are scarce on the bourse, Citi welcomes a ‘third amigo’ that offers an alternative to OZ Minerals ((OZL)) and Sandfire Resources ((SFR)). Coverage begins with a Buy rating and $3.20 target price.

The company operates the polymetallic Golden Grove mine in Western Australia and the Capricorn Copper mine in Queensland. In addition, there’s an advanced exploration stage project in Chile, named Redhill. 

The broker likes an earnings (EBITDA) margin of around 40% and free cash flow yield of circa 14%, while also cautioning that more copper price leverage than peers, from being a higher-cost producer, works both ways.

Citi feels efficiency should continue to improve at Capricorn Copper as output rises, and notes the potential to increase production from Golden Grove with the current focus upon a third mining area at Gossan Valley.

More info:

Macquarie is also excited by developments at Golden Grove and envisages an improved 2022 operating performance after all final regulatory approvals for the paste plant at the project have been received. The plant is now expected to be commissioned in the first half of 2022.

Regarding Capricorn Copper, the analyst believes there has been a key de-risking event for the production outlook after a recent breakthrough to the surface at the Esperanza South ore body. The broker maintains its Outperform rating and $3.60 target price and has 29Metals as a preferred pick in copper, alongside OZ Minerals.

In a less recent update, just after September quarter results in early November, Morgan Stanley downgraded its target price for 29Metals to $2.90 from $3.10. Results for Capricorn Copper surprised positively though numbers for Golden Grove were much weaker than expected.

Nonetheless, the broker maintained its Overweight rating and in its bull case scenario, lifted its target price by 10 cents to $4.80.

Elsewhere on the FNArena broker database, Credit Suisse has an Outperform rating and $3.10 target price, though hasn’t updated since late October. The consensus target price on the database is $3.21, suggesting 17% upside from the latest share price. 

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