Jefferies insights: Copper mining for growth, iron ore for value

Investing.comJun 19, 2024 5:56 AM

Investing.com - Analysts from Jefferies have forecasted higher commodity prices over the next 6-12 months due to improving demand, noting that iron ore mining shares are the most undervalued, while copper miners are most leveraged to an eventual recovery.

Based on their estimates, mining equities currently discount a copper price of $4.74/lb (versus a spot price of $4.39/lb) and an iron ore price of $81/t (versus a spot price of $106.35/t).

Analysts also noted that an increase in the copper price is crucial for copper mining equities, in order to meet demand for electrification, onshoring, and a growing global economy. They believe that a rising copper price is also necessary for copper mining share prices to increase.

Despite the recent selloff in copper, Jefferies' top picks for leverage to the subsequent expected recovery are Freeport-McMoran Copper&Gold Inc (NYSE:FCX), Teck Resources Ltd (NYSE:TECK) and Lundin Mining Corporation (TSX:LUN).

On the other hand, Jefferies analysts feel that a flat iron ore price would be sufficient for the major iron ore miners, estimating that shares of the big three iron ore miners are on average discounting an iron ore price of $81/t in perpetuity.

This is significantly lower than the current spot price and their long-term forecast of $90/t. Therefore, they conclude that iron ore mining shares should perform well over time even if the iron ore price remains flat at the current level. Their top picks in iron ore for value and yield are Rio Tinto ADR (NYSE:RIO) and BHP (ASX:BHP) Group Ltd ADR (NYSE:BHP).

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