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What are we looking for?

Valuations for the 10 largest copper stocks trading on the Toronto Stock Exchange.

The screen

As with many industries, stock prices are very dependent on the underlying commodity, in this case copper, which recently hit a record high.

We used StockCalc’s screener to select the top 10 listed copper stocks by market capitalization on the TSX. We then used StockCalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see whether it is undervalued or overvalued compared with its price.

Overview of the techniques used:

· Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;

· A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;

· An adjusted book value (ABV) is calculated by multiplying book value per share by its 10-year average price-to-book ratio.

· If we have analyst coverage, we look at the consensus target price.

More about StockCalc

StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to StockCalc using the promo code ‘Globe30′, which offers a 30-day free trial and special pricing for the second month.

What we found

10 of the largest copper stocks trading on the Toronto Stock Exchange

CompanyTickerMkt. Cap. ($ Mil.)Recent Close ($)StockCalc Val ($)Diff. (%)DCF Value ($)Price Comps $)ABV ($)Analyst Target ($)1Y Rtn. (%)Div. Yld. (%)
First Quantum Min.FM-T 16,355.1 38.4940.204.443.8146.2114.2347.7147.6n/a
Lundin MiningLUN-T 6,759.5 13.0114.007.621.9211.977.9615.61-3.43.4
Turquoise Hill Res.TRQ-T 3,676.2 26.4229.3311.077.9727.5432.8029.3647.1n/a
Hudbay MineralsHBM-T 2,063.9 10.409.14-12.26.757.665.3916.3327.70.2
Capstone MiningCS-T 2,063.9 7.587.22-4.821.964.641.139.69122.3n/a
Ero Copper Corp.ERO-T 1,916.0 20.4224.0017.524.3823.7541.4030.710.7n/a
Taseko MinesTKO-T 664.4 2.712.50-7.7-0.071.790.853.2337.6n/a
Copper Mtn. MiningCMMC-T 606.3 3.994.123.26.733.261.415.1838.5n/a
Imperial MetalsIII-T 554.7 4.244.629.0-2.032.355.138.503.6n/a
Marimaca CopperMARI-T 333.7 4.134.07-1.4-4.901.663.646.64-1.7n/a

Source: StockCalc

You can see in the accompanying table the percentage difference between each stock’s recent closing price and its intrinsic value. The “StockCalc Valuation” column is a weighted calculation derived from the models and analyst target data if used.

There are a number of moving pieces affecting the price of the red metal, both up and down, including:

  • Conflicts such as the war in Ukraine, which can affect supply and demand. Russia was the eighth-largest copper-producing country in 2021. (None of the names on our list has a presence in Russia, according to our database. Ukraine has no active copper developments);
  • Electric vehicles, which can use up to three times as much copper as internal combustion engines, thereby increasing the demand for copper;
  • China, which in the fall of 2021 released copper, zinc and aluminum from its national reserves in a bid to control commodity prices. (Chinese processing and manufacturing companies were eligible to bid, provided the purchased metal was used for immediate production and not resale.)
  • Chile, which has adopted a levy of 1 per cent on the value of gross copper sales that will come into effect on Friday;
  • Inflation, which reduces the purchasing power of the U.S. dollar, thereby increasing commodity prices.

Notably, all the analyst targets for the stocks shown are above our weighted average valuations, implying the analysts are more bullish on these stocks than our models.

Let’s look at a couple of these companies:

First Quantum Minerals Ltd. is the largest pure-play copper stock traded on the TSX (copper is 80 per cent of its gross revenue). It is the world’s sixth-largest copper producer with operations and development projects in nine countries. Two of our three valuation models are above the current price. The company has debt reduction as a priority and we see that higher debt reflected in the lower ABV value.

Capstone Mining Corp. is focused on copper with producing mines in Arizona and Zacatecas State, Mexico. It had the largest one-year return on our list. Our models show Capstone as slightly overvalued with only one of our three valuation models, along with the analyst target, currently above the stock price. Capstone recently combined with Mantos Copper (Bermuda) Ltd. and is renaming the combined entity Capstone Copper Corp.

Investing involves risk. StockCalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.

Full disclosure: The author currently owns shares in CMMC.

Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.

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