4min read
PREVIOUS ARTICLE Are Financial Stocks Still A G... NEXT ARTICLE SECTOR SCAN: Stock Materials I...

Copper’s versatility lends itself to many applications. Since June 2010, global demand for copper has driven up the spot price by 50 per cent to US$4.24 a pound on April 15, 2011. Hamza Habib, associate adviser at Patersons Securities, expects an improving global economy to drive copper demand beyond supply. “For 2011, the market is expecting a copper supply deficit above 444,000 tonnes,” he says. “This is subject to change depending on the speed of the global recovery.”

Habib’s stock selections sit within metals and mining, the predominant category in the materials sector. Metals and mining consists of 709 companies for a total market capitalisation of about $408 billion on April 12, 2011. The broader materials sector has 746 companies for a total market capitalisation of $454 billion. According to Standard & Poor’s, the materials sector makes up almost 30 per cent of the total index.  The materials sector has also been a top performer, posting an annualised return of 10.99 per cent in the past 12 months to March 31, 2011. That says something about commodity stocks. For the same period, the S&P/ASX 200 booked a negative annualised return of 0.77 per cent, according to Standard & Poor’s. Amid a positive outlook for copper, Habib offers his best value choices from a field of producers and explorers.

PanAust Limited (PNA)

Chart: Share price over the year to 15/04/2011 versus ASX200 (XJO)

Market Capitalisation: $2.43 billion
Share price: 75.5 cents

A company with operations in Laos, Thailand and Chile. Habib says its major project at Phu Kham in Laos produced 67,806 tonnes of copper in 2010. The group has given EBITDA guidance (earnings before interest, tax, depreciation and amortisation) of between US$335 million and US$390 million, which Habib says is achievable for full-year 2011 on the back of a strong copper price. “As the company continues to ramp up production at its current and prospective projects, PanAust presents investors with a substantial growth profile,” he says. “Total production may double by 2014.” Habib says the company is also a gold and silver producer, which adds weight to its investment case.

Metminco (MNC)

Chart: Share price over the year to 15/04/2011 versus ASX200 (XJO)

Market capitalisation: $486.2 million
Share price: 39.5 cents

Habib says Metminco has one of the biggest copper resources for an ASX-listed company, and is looking to position itself as a major producer. The company has several projects, but its major one in Southern Peru identifies a JORC (Joint Ore Reserves Committee) resource of 926 million tonnes. The mine is fully funded after the company raised $30 million. Habib says another positive is access to infrastructure. Metminco’s projects are well located to access water and power.

Highlands Pacific (HIG)

Chart: Share price over the year to 15/04/2011 versus ASX200 (XJO)

Market capitalisation: $236.7 million
Share price: 34.5 cents

Two of its three major projects in Papua New Guinea involve a partnership with global mining giant Xstrata. Habib says $20 million in cash and no debt provides a cost buffer for the company.  Highlands Pacific’s tenements contain significant gold and nickel, which will be mined with copper. Habib says the company looks under-valued after assessing all future projects and production targets. “With a healthy balance sheet, strong partner, large resource and a relatively low share price, Highlands Pacific looks like an attractive investment, with potential upside in the short to medium term,” he says.

Phoenix Copper (PNX)

Chart: Share price over the year to 15/04/2011 versus ASX200 (XJO)

Market capitalisation: $26.95 million
Share price: 26 cents

One of the smaller listed copper company’s on the ASX, with a market capitalisation below $30 million. Phoenix Copper’s main focus is South Australia, where four principal projects cover 1300 square kilometres. Habib says three of Phoenix’s projects are in the historically significant and highly prospective Burra region. The fourth project covers two separate areas of the Yorke Peninsula. He says Yorke’s favourable geology is similar to that of the famous Copper Triangle, situated only 20 kilometres north of this project. The Yorke Peninsula tenements border those of Rex Minerals (RXM), which had a spectacular discovery in 2009.

Newcrest Mining (NCM)

Chart: Share price over the year to 15/04/2011 versus ASX200 (XJO)

Market capitalisation: $31.46 billion
Share price: $41.30

Although widely known as a gold giant, Newcrest Mining is also a large copper producer. Habib says in December 2010, Newcrest sold 37,000 tonnes of copper, generating $303 million in revenue. “Newcrest has almost doubled its capital expenditure on current projects and has also ramped up investment for further exploration,” Habib says. “Both, the company’s robust balance sheet and diversified operations across Australia, Indonesia, Papua New Guinea and Fiji present significant growth for years to come.”

>Market capitalisation at April 12, 2011
>Share prices at April 15, 2011

Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au.You should seek professional advice before making any investment decisions.