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Discover Which Metals Are the Best Opportunities in Mining
Analysts expect the mining sector to take advantage of the Chinese “Year of the Tiger” to grow. Although 2021 was highly volatile for mining assets, the sector should develop in 2022, even amid another year of challenges. But globally, it remains to be seen which are the best mining opportunities – iron, uranium, lithium, or copper?
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On Thursday, December 2nd, Ohmresearch gathered three industry specialists during the event Ohmresearch Global Insights 2022 to address the question.
According to commodities and mining expert Gilberto Cardoso, the iron ore segment should take advantage of the Chinese “Year of the Tiger,” with Winter Olympics and elections at the end of 2022.
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He sold his share for R$ 4 thousand, saw the company become a giant worth R$ 19 trillion, and missed the opportunity of a lifetime.
After a year of constant fluctuations in the price of iron ore, which reached US$ 200 per ton in May, there was stability until July and a decline in the second half due to supply-demand challenges and a decrease in ore production.
According to the expert, the Winter Olympics and the Chinese elections are expected to impact iron ore in 2022.
Gilberto Cardoso also highlighted that the Chinese government imposes significant restrictions on steel production in the country, primarily as a way to demonstrate to the world a commitment to controlling environmental impact.
“They are trying to show the world that they are committed to environmental issues. And this heavy-handed approach from the government (Chinese) reflects on commodity prices. That’s why the price of iron ore dropped after mid-year,” he explained.
However, the expert believes that 2022 will be a positive year for iron ore, especially after the Olympics. The expectation is that the infrastructure and manufacturing sectors will gain traction and iron ore production will accelerate.
In light of this outlook, he highlights two companies in the segment: Vale and Fortescue Metals Group (FMG). According to the expert, Vale is very competitive because it offers better material quality compared to its competitors, even with freight costs.
“Vale and FMG will have fantastic performances comparing sales margins and highlighting ESG aspects. They will capture the growth of 2022,” says Gilberto, stating that the Brazilian company is very undervalued and has “great” upside potential for the state-owned enterprise.
Lithium and Copper Market Deserves Attention
Equity strategist and analyst for Latin America, Ricardo Fernandez, shared tips on the best lithium and copper assets currently.
According to him, to meet the end of the combustion engine cycle, lithium, a metal widely used in batteries, should increase production by 15% to 20% per year. This is mainly due to the growing global demand for electric vehicles.
Additionally, the analyst recalls that lithium prices surged from US$ 6,000 per ton in 2018, when electric car companies began to significantly expand, to US$ 15,000 per ton.
“With the pandemic, lithium production halted and went back to around US$ 5,000, and today it is quoted at US$ 18,000 per ton.”
The strategist draws attention to two stocks in the sector: Albemarle (A1LB34) and Sociedad Química y Minera de Chile (SQM or SOQUIMICH). “These companies can grow 20% per year over the next five years,” he projects.
However, Ricardo states that he prefers SOQUIMICH because it trades at half the valuation of Albemarle. “SOQUIMICH is the largest lithium producer in the world and will remain so for the next five years. They are not cheap stocks, but they are at the eye of the storm in terms of the electric car revolution,” he highlights.
According to the expert, due to the expansion of electric motors, the demand for copper will increase globally in the coming years. However, this demand will likely be lower than that for lithium.
He also stated that China is the world’s largest copper consumer, using 60% of the total volume. Approximately half of that is for residential construction, which could pose a problem as the Chinese sector faces difficulties for various reasons, especially due to the Evergrande company crisis.
Fernandez does not believe that copper prices will rise significantly in the coming years, as this will depend on demand and the pace at which residential construction in China slows down.
Investments in the Uranium Market
Corporate credit strategist Martin Tixier informs that yellowcakes are very promising when considered for sustainable energy in the future. Yellowcakes is a concentrated uranium material.
The demand for uranium could grow by 130% to 150% in the coming years, with annual uranium consumption already increasing by 16% due to the completion of 57 reactors.
Martin highlights the Kazakh company KazAtomProm (0ZQ), which is the largest player in uranium globally and has the capacity to significantly increase its production. The company has an Ebitda margin of 60% and is 8 times cheaper than Cameco, its direct competitor.
“KazAtomProm could increase its profit by 6.5 times over the next five years due to lower costs and dividend policy, which is why it is trading at discounts,” concludes the specialist.
Tixier also reminds that many countries are incorporating uranium into their energy matrix and that metal prices rose in 2021 and will likely continue to rise in 2022.
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