Is Sandfire Resources (ASX:SFR) The Best Copper Stock?
Jason McIntosh explains why Sandfire Resources (ASX:SFR) could be a copper stock to buy now. It’s an ASX copper producer that’s been benefiting from the rising copper price. This interview appeared on the Ausbiz financial news channel on 10 May, 2021.
Host: Copper prices are up significantly from their lows. Why is Sandfire Resources on your buy list?
Jason: Sandfire Resources is a mid-tier copper producer. The company operates the DeGrussa copper-gold operation in WA. DeGrussa is both a low cost and high margin mine.
The latest financial results were strong: Revenue for the first half was up 13.6% to $355.6 million, EBITDA was up 30.6% at $238 million, and NPAT was up 78% to $60.8 million.
And this is reflected in the balance sheet. SFR has no debt and $463 million in the bank.
Sandfire is currently a single mine company. But that’s about to change.
You see, they’re developing a new long-life mine in Botswana. And this is significant, because it’s one of the few new copper mines under development anywhere in the world.
They also have some highly prospective areas in Australia and the US to potentially drive organic growth. And I believe this provides a real growth story for the company.
Let’s have a look the chart:
The first thing to note is that the moving averages are rising. This is important, as it shows that momentum is to the upside — the path of least resistance is higher.
Motion Trader’s strategy involves investing in the direction of the trend. You’ll see two entry points on the chart. The dotted line below the moving averages is the trailing exit stop. No matter how compelling a story, an exit strategy is essential for protecting capital.
Getting back to the company’s profitability, the copper price has clearly been a big factor. Copper is trading near all-time highs having more than doubled over the last 12 months.
And while there’s scope for a correction, I believe higher levels are likely in the future.
The global trend towards decarbonisation appears to be gaining momentum. And copper is a key player — we can’t electrify the world without it.
Take electric cars for example…
They use around four times the amount of copper as a regular car. So if electric car use grows, and it certainly looks like it will, then there’s going to be a lot of demand for copper.
A supply deficit is possible in coming years as miners struggle to keep up with demand. The prospect of supply shortages is made worse by a lack of investment in new projects.
Recent investment has largely been focusing on expanding existing operations. But ultimately, new mines are needed, and these take years to find and develop.
Motion Trader’s focus is on medium term trends. Some of the factors discussed may take years to unfold. And SFR could experience several up and down trends in that time.
But I believe the backdrop for quality copper miners is positive.
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I'm Jason McIntosh, the creator of Motion Trader. My career began in 1991 on the trading floor at Bankers Trust. Nowadays, I trade my own systems from home in Sydney.
Motion Trader is for investors who value robust analysis, data driven entry and exit signals, commentary, and education. I use engineered algorithms to identify when to buy and sell ASX stocks. No biases or guesswork, just data driven signals.